5 Deathbed Stocks

We've all heard of the "death rattle," the last gasp from a lost soul's lungs. Sometimes, we seem to hear it from the companies in which we invest. Revenues dry up. Margins contract. Profits evaporate. All these signs suggest that their condition is worsening -- a financial death rattle, if you will.

Stocks in sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others make a full recovery. Sure, it happens, but here we're seeking companies that have all but given up the ghost.

For help, we'll turn to the clever coroners at our 86,000-strong Motley Fool CAPS community, where players give the thumbs-up or thumbs-down to more than 5,400 stocks. A year's worth of data suggests that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst. We've unearthed a handful of stocks that look like they might be headed six feet under, having recently dropped from two stars to the lowest one-star rating.

We'll also check out some quick tests for liquidity -- the current ratio and quick ratio (also called the "acid test" ratio) -- which gives us an idea of a company's ability to pay its bills. A current ratio above 1.5 and a quick ratio north of 1.0 means it's able to meet its short-term operating needs. But watch out! Too high a value might mean the company is hoarding assets that could be better used elsewhere.

Here's today's list. The question is, are these companies only mostly dead, or have they truly given up the ghost?

Looking at the names on the list, you might be tempted to think that some of these might need the ICU unit, rather than a cemetery plot. Psychiatric drug developer Corcept Therapeutics has enjoyed a terrific run over the past year and successfully completed a secondary offering last fall that will enable it to finance the next phase of clinical trials for Corlux, its therapy for psychotic depression. Even so, stocks that CAPS investors have marked down to one star are possibly destined to seriously underperform the market in the future.

It's a countrywide chasm
Despite seemingly sufficient liquidity and the offer of a buyout from Bank of America (NYSE: BAC), there's a very real risk that Countrywide Financial's financials will worsen and its savior may very well decide the wreckage isn't worth the effort. The mortgage lender has been the subject of congressional hearings, some investors are complaining that Bank of America is getting Countrywide on the cheap, and the FBI is reported to have the company in its crosshairs over its lending practices. As more borrowers default, the merger itself may become more tenuous. At the least, even better terms could be easily demanded.

Still, there are plenty of CAPS investors who see potential here, like B1ll1am, who remains hopeful about the merger but also sees the Fed's move to inject liquidity into the market as a sign that Countrywide can still tread water. Here's the pitch from yesterday:

Bank of America is buying this company out and giving current shareholders of CFC, shares of [B of A]. The current value would be about $6.50 and CFC is trading around $5.00. So, as long as the sale to [B of A] goes through, you can't lose. Also, the FED is aggressively adding liquidity to the system and cutting interest rates. This all will help to save CFC and produce a nice return.

Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they recover to shine again? On Motley Fool CAPS, you have the power to tell your fellow investors just how you feel. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.