Our Top Stocks to Watch Today Are All Short Plays

Our top stocks to watch today (Friday, May 12) are three stocks that are all worthy of a short position.

By next week, at least one of these companies will declare bankruptcy, while another is plunging after yet another disappointing earnings report.

This first stock has a major court ruling in its favor, which is pushing the stock 38% higher this week. However, we don't expect the rally to last.

Here are the three top stocks to watch today…

Top Stocks to Watch Today: Valeant Pharmaceuticals International Inc. (NYSE: VRX)

Our favorite stock to short, Valeant Pharmaceuticals International Inc. (NYSE: VRX), is flat in morning trading despite a court ruling in its favor.

Yesterday, a court ruled in Valeant's favor over patent litigation. The documents are sealed, but the ruling confirms Valeant's patent on Xifaxan. The ruling sent Valeant stock up over 8% yesterday. For the full week, VRX stock has rallied 38%.

We've been telling readers to avoid VRX stock for years, and that recommendation was spot on. After a brief rally Nov. 2, 2016, when VRX gained 18%, the stock reversed and sharply declined. Since that rally in November, the stock has lost 42.25%. Needless to say, we still recommend shorting the stock.

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Back in 2015, the company faced a kickback scandal that lead to fraud charges for former Valeant executive Gary Tanner. The stock has been in a downward spiral ever since, losing 94% since Aug. 1, 2015.

Why VRX is a must-watch today: While the stock is rallying with the court ruling, we expect VRX to resume its downward trend next week. Valeant stock has been declining since August 2015 and has lost 95% of its value in less than two years.

Top Stocks to Watch Today: Nordstrom Inc. (NYSE: JWN)

Nordstrom Inc. (NYSE: JWN) has dropped 4.5% this morning after announcing its earnings, despite posting a profit.

Nordstrom had EPS of $0.43, almost doubling analysts' expectations of $0.23. However, this is the lowest EPS in the last four quarters. The next lowest was Q3 2016 at $0.67.

The retailer's sales disappointed, like many of its retail peers. Comparable sales dropped 0.8% for the quarter. Despite the drop in sales, Nordstrom re-affirmed its guidance for sales growth of between 3% and 4% this year.

We've been telling readers for years that declining sales will make traditional brick-and-mortar retailers excellent stocks to short. In fact, back in 2015, Money Morning Chief Investment Strategist Keith Fitz-Gerald said retail stocks are dead. And that's a stance we continue to hold.

Why JWN is a must-watch today: The company's sales are declining despite the push towards online retailing. This quarter, almost 25% of sales came from online. Clearly the retailer is not adapting fast enough.

Top Stocks to Watch Today: Tidewater Inc. (NYSE: TDW)

Tidewater Inc. (NYSE: TDW) is plummeting over 40% in early morning trading after announcing plans to file for bankruptcy early this morning.

The company provides marine support services as well as offshore service vessels. The bankruptcy filing is expected to take place by Wednesday (May 17).

Tidewater has already agreed to a restructuring deal with lenders. The agreement will eliminate roughly $1.6 billion in debt.

In the agreement, existing shares of the company will be canceled, and shareholders will receive new common stock making up about 5% of the equity after the reorganization.

Why TDW is a must-watch today: The company will file for bankruptcy by the middle of next week. This will likely send the stock price to $0 before the new common stock is issued.

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