These Stocks Should Be Avoided in 2011

It’s hard to believe, but the holiday season is upon us and there is only about a month and a half left in 2010. Because this is the busiest time of the year for investors like you, I thought I’d get out ahead of the New Year and I would give you 10 stocks that I think you should dump for 2011.

Some of these stocks have had a good run and some never really got anything going this year, but all are too risky if you’re looking to build a solid portfolio in 2011.

Let’s get right to this list of stocks you should sell or avoid as we close out 2010.

#1 – Bancorp South Inc.

When I run an analysis of the fundamental strength of all stocks on the market, the bottom of the list is overwhelmingly made up of financial stocks.

BancorpSouth Inc. (NYSE: BXS) is the holding company for BancorpSouth Bank and it had a pretty miserable 2010. After climbing back to $24 a share early in the year, the stock quickly tumbled to its current price of under $14.

Despite one positive quarter, the company has missed earnings estimates by more than 20% over the last four quarters and I don’t see better things coming for the company in 2011.

#2 & #3 – E*Trade & Charles Schwab

Here are two bigger-named financial companies you should also avoid in the year ahead: E*Trade Financial Corp. (NASDAQ: ETFC) and Charles Schwab Corp.(NYSE: SCHW). I haven’t ranked either stock as a buy for 2010, and I don’t see it happening in 2011 either.

Both companies have managed to post some earnings surprises in the last year, but haven’t been able to translate these into progress for the company or into profits for investors.

Avoid both in the year ahead.

#4 – Office Depot

Bank stocks aren’t the only stocks that are heading for a rough year ahead.

I actually rated Office Depot Inc. (NYSE: ODP) as a buy for a short time in early 2010. The stock was on a roll and earnings were strong coming out of 2009, but it wouldn’t last long for the office supply retailer.

My warning here is not to fall for ODP’s fourth-quarter earnings. While they may be strong, it appears that unless we have a holiday shopping event every quarter, the numbers will continue to sag.

#5 – Genoptix

Genoptix, Inc. (NASDAQ: GXDX), the diagnostic testing facility, is next on my hit list. The company receives bad marks for just about every metric in my grading system. The healthcare sector, as a whole, had a rough year, but Genoptix’s problems run deeper than uncertainty about health care reform.

In the spring, Genoptix seemed to be picking up steam after a tepid beginning to the year, but the sharp gain in April was short-lived. GXDX shares peaked at $38.79 and by June had plummeted to just $15.61 per share. And shares stayed at these levels throughout the remainder of the year. The company has posted mediocre earnings surprises in recent quarters and analysts continue to lower their estimates significantly.

I see little chance of Genoptix making any major rebound in the New Year.

#6 – AES Corp.

Next on our 2011 black list is the global power company AES Corp. (NYSE: AES). While utilities are typically seen as the unsung heroes of steadily gaining stocks, AES is one of the exceptions to this rule.

The stock has been steadily declining throughout 2010 and hasn’t been rated above a “C” in the last 12 months. Decreasing sales estimates and a painful negative 23% earnings surprise in the third quarter have the company’s fourth quarter and 2011 forecast looking grim.

Despite a slight gain in September and October, AES is already shooting down in November, with little hope of recovery in the near months.

#7 – Advantest

The semiconductor sector has been on a roller-coaster ride of its own this year and Advantest Corporation (NYSE: ATE) has had a front-row seat on that ride.

It seemed that 2010 would be a promising year for the semiconductor equipment company. The stock opened strong and reached up to just over $28 per share in January, but it was a short-lived victory. Stock prices dipped in February, and despite a small reprieve in the middle of April, the company’s performance steadily weakened.

Hovering at just over $19 per share, ATE has dropped 32% since its high in January. If you are unfortunate enough to own this company, get out now.

#8 & #9 – Gammon Gold  & Jaguar Mining

It’s easy to sight and stay away from consistently underperforming stocks, you may say. But, what about the companies that have rallied in recent months? How should an apparently strong comeback be interpreted?

As investors you surely recognize the sometimes fickleness of the market. So, keep that in mind when considering stocks that appear to be on the up-and-up. Remember, if the fundamental strength isn’t supporting the company, positive performance won’t last long. Consider these next picks on my dump list.

I’m certain you all remember the terrible Chilean mining accident back in August that left 33 miners trapped underground for over 2 months. In the nearly nine weeks before the rescue took place, mining stocks hit a huge surge. Gammon Gold, Inc. (NYSE: GRS) and Jaguar Mining Inc. (NYSE: JAG) provide great examples of trend stocks to be careful of. Shares of both stocks surged in August. Gammon jumped 30% between August and September, while JAG increased 21% between the time the miners got trapped and they were rescued.

These fundamentally weak companies profited from the mining trend. And while they’ve maintained gradual growth in the months following the rescue, we can already see them showing their true colors and losing momentum.

#10 – Manulife Financial

My final big no-buy for 2011 is the insurance company Manulife Financial Corp. (NYSE: MFC). Insurance companies often get a bad rap, but in this instance the company deserves it. However, in late August the company seemed to be turning around the downward trend it had experienced all year and picked up speed. This month alone MFC shares have jumped 20% and all appearances make it seem like the growth will continue. The only problem: The company’s metric grades do not reflect this optimistic outlook. Across the board Manulife is receiving D’s and F’s in its fundamental markers. And these important fundamentals don’t appear to be changing anytime soon.

It may be tempting to succumb to media hype and sudden big sector movements like we’re seeing with raw materials and precious metals, but you need to remember to keep your head.

Like a building, if a company is built on a shaky foundation, it will inevitably come crashing down. When deciding where to invest your funds, make sure you look at the overall performance of a company and try to anticipate how it will react to important external factors.

But don’t feel too overwhelmed. As always, I promise to be here for you in the New Year, helping guide you to make profitable investment decisions!