Some stocks on Wall Street that are attractively valued could come with a steep catch, according to Wolfe Research. Stocks look set for another down day on Wednesday after a five-week winning streak ended on Friday. Investors are bracing for Nvidia earnings after the bell, which will help determine whether the excitement over artificial intelligence is more than just hype. Earnings reports are also being scrutinized for signs of how the economy is holding up amid high interest rates. With stocks starting to fall, investors may begin to think some names are a good value when they are not. Wolfe screened for potential value traps in a note Thursday. Stocks made the list if they appeared “attractively valued relative to their sector on a free cash flow or PE basis,” but also met at least four of its “value trap” metrics, which include factors such as short interest as a percentage of float, the percentage of analyst buy ratings and free cash flow yield compared with a stock’s price-to-earnings ratio. Depending on an investor’s style, one could consider these potential ideas to short, or simply stocks to avoid. Shorting a stock involves borrowing shares at a set price with the expectation that the price will fall, allowing an investor to buy it back for a profit. However, if the price rises, an investor could get hit with hefty losses. Here’s a look at some of the stocks that made the Wolfe list. Casino operator and online gambling company Caesars Entertainment shares have pulled back about 11% since the start of the year, while short interest sits at 3% of float, according to Wolfe. On Tuesday, the company missed fourth-quarter estimates on the top and bottom lines. Caesars reported a loss of 34 cents per share and revenue of $2.83 billion, while analysts polled by LSEG forecast a loss of 4 cents per share on revenue of $2.85 billion. Executives said on the company’s earnings call Tuesday that they expect double-digit active user and gaming revenue growth at Caesars Palace Online, which will help alleviate pressure from higher costs at its brick-and-mortar Las Vegas casinos. CZR YTD mountain Caesars Entertainment stock. To be sure, about 71% of analysts polled by FactSet maintain a buy rating on the stock, with their forecasts implying 41% upside moving forward. Wolfe listed the excess buy ratings on Caesars’ stock as one of the indicators that make the company a short candidate, as well as its expected earnings deceleration of 95%. Walgreens Boots Alliance also made the cut. Shares of the pharmacy chain have slumped about 15% so far in 2024. Short interest hovers at 5% of the company’s float, and Wolfe noted Walgreens’ anticipated earnings deceleration of 165% is a warning sign for the stock. The company’s first-quarter earnings beat was overshadowed by Walgreens’ decision to slash its dividend in half. The firm is coming off a weak 2023 that was plagued by lower demand for Covid-19 products and macroeconomic headwinds. Analyst ratings have increasingly signaled caution on the stock. Only 15% of analysts polled by FactSet maintain a buy rating on Walgreens, while their average price targets imply about 12% upside ahead. The majority of analysts have a hold rating on the stock, per FactSet. WBA YTD mountain Walgreens stock. The stock could also experience some selling pressure in the short-term following news that Amazon will replace Walgreens in the Dow Jones Industrial Average on Monday. Walgreens had been a component in the 30-stock index since 2018. Satellite company ViaSat recently was added to the list, which also includes Alaska Air and Shift4 Payments . — CNBC’s Michael Bloom contributed reporting.
