5 Stocks to Avoid in 2009

Good news: 2008 is almost over! Bad news: 2009 is about to begin. I don't mean to sound pessimistic but … er … OK, yes I do. The next 12 months will be a terrible, terrible time for some companies.

Here are 5 companies I'd suggest steering clear of in 2009:

Citigroup (NYSE: C  )
I think Citi's recent trip to the bailout window for the second time in almost a month is a harbinger of what's to come in 2009. With more than $2 trillion in assets -- almost 90% of them either Level 2 or Level 3 -- supported by a sliver of tangible equity, it's no great stretch to predict that Citi will struggle to stay alive without more government largesse. After another quarter or two of spectacular writedowns, I suspect the Treasury will intervene with a bailout to end all bailouts, leaving common shareholders virtually wiped out (similar to Freddie Mac, Fannie Mae, and AIG), and auctioning off what's left of the company to healthier banks.

Morgan Stanley (NYSE: MS  )
While a tremendous amount of Morgan Stanley's ills are already priced in (with shares down more than 70% this year), I have trouble wrapping my head around its place in the new, smaller Wall Street. Sure, the death of Lehman Brothers and fallout from Bear Stearns represented a hefty shakeout. But when you consider that Goldman Sachs (NYSE: GS  ) has an unquestionably stronger reputation, Merrill Lynch has the financial backing of Bank of America (NYSE: BAC  ) , and JPMorgan Chase has one of the strongest balance sheets in the league, the silence surrounding Morgan Stanley's position on Wall Street is deafening.

Sirius XM Radio (Nasdaq: SIRI  )
With more than $1 billion in debt coming due in 2009, and barely one-third that amount in cash, the market's resigned to bankruptcy as a forgone conclusion for the satellite radio service. However, if management can somehow finagle a debt rollover, investors could be sitting on a viable company trading for a teeny-tiny fraction of what it used to.

I guess that could happen, but with a debt market that's completely shut out anything junk-related, it seems like a fairy tale to me. CEO Mel Karmazin has said that bankruptcy isn't an option, but need I remind you that we heard similarly reassuring bouts of optimism from the CEOs of Bear Stearns and Lehman Brothers before their demises? 

If bankruptcy truly isn't an option, and the debt market refuses to hear Sirius' case, perhaps a massive outside investment that dilutes existing shareholders into oblivion is this company's last hope. While some might cling to the theory that "the most you can lose is $0.15 per share," the inner smart-aleck in me would like to remind you that percentagewise, going from $0.15 to zero is still a 100% loss.

New York Times (NYSE: NYT  )
As Jon Stewart put it last night: "What's black and white and completely over? Newspapers!" You don't have to look any further than the recent bankruptcy of Tribune to see this firsthand. Of course, Tribune had a ridiculous debt load, thanks to Sam Zell's leveraged buyout, but a comparison to Times' fate isn't too far off: Both relied on outmoded business models, and both indulged in debt that only made sense when the economy was booming.

In its latest attempt to tackle the cash crunch, the Times is considering mortgaging its New York headquarters to raise cash. Hey, there's no better cure for too much debt than, uh, more debt, right?

Delta Airlines (NYSE: DAL  )
Hard to believe this struggling airline -- with among the weakest cash/debt ratios of any of its peers -- has nearly tripled since July. What's behind the surge? The plunge in oil, of course. Take a company's largest operating expense, hack the price down to levels not seen in years, and Delta's prospects will naturally look rosier than they have in a while.

If you believe cheap oil is here to stay, Delta might be a steal. Me? I think oil's spectacular plunge in recent months will be remembered as a blip on the radar during an inevitable upaward march. Some see oil going as low as $20 a barrel in 2009 … pretty sweet for airlines! Of course, markets look ahead, which is where things get ugly: You'll be hard pressed to find a long-term oil projection of anything short of $200 a barrel. Considering that $147 oil nearly brought the industry to its knees, the prospect of $200+ oil should make airline investors nauseous.

Care to share any other stocks you'd avoid in 2009? Fire away in the comment section below.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (80)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 10, 2008, at 5:10 PM, nerd1951 wrote:

    Ford and GM, of course!

  • Report this Comment On December 10, 2008, at 8:02 PM, Factrender wrote:

    Coldwell Banker will file bk within 6 months.

  • Report this Comment On December 10, 2008, at 8:17 PM, twenty1b wrote:

    Regarding Delta, where did you get the info that they have the worst cash/debt ratio among peers? Does that include the recent American Express deal?

  • Report this Comment On December 10, 2008, at 11:09 PM, zeppelin1704 wrote:

    ...should make airline investors nauseated, not nauseous. Check it out in your Gregg Reference Manual.

  • Report this Comment On December 12, 2008, at 7:23 PM, PaFrogboss wrote:

    Personally, I think (and have always thought) that Starbucks is destined to go the way of Krispy Kreme.

  • Report this Comment On December 12, 2008, at 7:38 PM, zagrebzagreb wrote:

    Some of the most convoluted and difficult to understand annual reports are found in the airline industry. Add to that the fact that historically this a poorly performing sector, and already you have good reasons to stay away... never mind fuel prices, falling demand, etc.

  • Report this Comment On December 15, 2008, at 6:02 AM, ttboydxb wrote:

    I agree on SBUX, and also today GS said they estimate oil at $45 a barrel for 2009, the same guys who said it would be $250 last year, therefore I am thinking $75-$100 oil is a safe assumption.

  • Report this Comment On December 19, 2008, at 11:07 PM, courtneTHEgreat wrote:

    Yes, courtne-the-Great is back... after the Nov 2008 crash, have you noticed the DOW trading in a smaller and smaller channel? Something great is about to happen. I say a major drop. Mis-management is real; the promises of great speakers is not, but the market rallies on positive speaches.... The last week in December and early January will be my prediction of the great moves in the DOW. Then in the second quarter, stability will return.

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