BALTIMORE ( Stockpickr) -- A rising tide lifts all ships -- except the ones with holes in the hull. They still sink regardless. >>5 Big Trades for a September Bounce That's why it's so important to stay vigilant in a bull market. Plenty of damaged stocks can appear to get lifted by a buoyant market, only to put your portfolio underwater when Wall Street catches onto the holes. Sure, a weakening stock can get floated higher temporarily by indiscriminate buyers in a bull market, but that doesn't carry over when the bears come out. When the broad market's in a downtrend, deteriorating firms are all but guaranteed to get sold off hard. The challenge, then, is to know what to look for before your shares get shellacked. So today, we'll attempt to spot the red flags in four big names. >>5 Big Short-Squeeze Stocks Ready to Pop We're looking at a combination of highfalutin metrics that point to money problems for companies. To make our list, a stock has to has to meet three out of these four red flag criteria: a bankruptcy prediction formula called Altman's Z-Score that registers at less than 1.8, indicating financial distress; rising CDS spreads, indicating that institutional investors are pricing in a higher probability of bond default; and dropping sales and inventory turnover. That quantitative approach to finding out red flags avoids the bullish bias that's historically put blinders on investors. So, without further ado, here's a look at four red-flag names to sell this fall.
JetBlueRichard Branson once joked that the best way to become a millionaire was to be a billionaire and buy an airline. JetBlue ( JBLU) shareholders should heed the warning. For full disclosure, JetBlue was a name I had recommended to clients in 2011 -- but we took the position off the table in the first quarter of this year as it staged a financial about-face. And it's been headed lower ever since. >>5 Rocket Stocks to Buy in September To be clear, JetBlue isn't the worst company in the world. But the headwinds in the airline industry coupled with small-cap scale are making it more challenging than ever to compete with the big boys. And the big boys are only getting bigger -- industry consolidations are creating larger airlines than ever before that are better able to cut costs across massive networks. While increased routes have boosted JBLU's revenues, profitability has been tenuous thanks to growing maintenance and repair costs. Despite incurring the costs one of the youngest fleets in the airline business, it costs more than ever to keep those planes flying. And JBLU needs to keep those planes flying if it wants to pay for those leases. The one-two punch of huge ongoing lease obligations and low margins makes this a tough stock to love. There was a time when I liked JetBlue a lot (and I certainly wouldn't recommend shorting it with the headline risk of an acquisition) but the red flags are waving too blatantly to ignore in 2013. To see these stocks in action, check out the at Red Flag Stocks 2013 portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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