10 Risky Stocks to Avoid: Morningstar

In a recent blog post, Morningstar investment specialist Susan Dziubinski shifted her spotlight from the stocks analysts think investors may want to consider to those they should definitely avoid because of their elevated investment risk.

Specifically, analysts screened for stocks that earn a Morningstar stock rating of just 1 star, meaning that they are trading well above the firm’s estimate of their fair value.

Dziubinski noted, however, that most of the stocks come from good companies. Seven maintain solid competitive advantages, what Morningstar calls economic moats. Four of the companies are run by ace managers who have a history of adeptly allocating capital and to which Morningstar awards its highest capital allocation rating, Dziubinski wrote.

And notably, one of the companies on the high-risk-stocks list is also one of Morningstar’s best companies to own, whose constituents score well on several of the firm’s quality-related metrics.

The investment lesson, according to Dziubinski: “A great company isn’t always a great stock to buy today; in fact, it can be a downright lousy stock to buy if it’s overvalued and doesn’t provide the buyer with a sufficient margin of safety.”

See the gallery for Morningstar’s list of high-risk stocks. Year-to-date performance is as of Sept. 17.