5 Deathbed Stocks

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We've all heard of the "death rattle," the dying sound emanating from a lost soul's lungs as the end approaches. Think of the sound hook-and-loop fasteners make as they're pulled apart.

Sometimes, it seems as though the companies we invest in are giving off signs of their own that the end is near. Revenue dries up. Margins contract. Profits evaporate. It's a visual cue that their condition is worsening -- a financial death rattle, if you will.

Stocks in sick bay
Not all companies that plunge into the abyss will die. Some will linger in a nether state, while others will bounce back to live another day. Kmart climbed from the coffin of bankruptcy to become part of Sears Holdings. Similarly, UAL, the parent of United Airlines, re-crossed the River Styx to fly the friendly skies once more.

Yet what we're seeking here are companies whose breathing is so labored that, for all intents and purposes, they've given up the ghost. To find them, we turn to the 79,000-strong investor-intelligence community of Motley Fool CAPS.

Checking out the morgue
This investing platform rates stocks and investors and assigns a rating to each: Stocks get one to five stars (five is best), and players get numerical scores up to 100. With a year's worth of data to test, the morticians digging through the information have found that stocks with the highest ratings did best, while those with the lowest fared worst. Yes, I know -- "Duh!" But we can begin to use this data to our advantage.

Below are a handful of stocks that are on the way down. These have recently moved from a low two-star rating down to the worst one-star rating. Are they suffering from a bad case of the flu, or is it the death rattle we hear?

Stock	1-Year Return	Recent Stock Price
Washington Mutual (NYSE: WM)	(68.96%)	$13.54
Merrill Lynch (NYSE: MER)	(42.10%)	$53.20
Nortel Networks (NYSE: NT)	(42.22%)	$15.38
XM Satellite Radio (Nasdaq: XMSR)	(16.63%)	$12.18
Capstone Turbine (Nasdaq: CPST)	34.13%	$1.69

Sources: Yahoo! Finance, Motley Fool CAPS.

Looking at the names on the list, you might be tempted to think that some might need the ICU unit rather than a cemetery plot. Merrill Lynch, for example, might be considered too big to fail, while Capstone Turbine has posted some decent returns this past year. However, stocks that CAPS investors have marked down to one star are possibly destined to seriously underperform the market in the future.

Getting static
Funny, but at the same time that XM Satellite Radio is getting downgraded from two stars to one, CAPS investors have upgraded rival (and possible marriage partner) Sirius Satellite Radio (Nasdaq: SIRI) from one star to two.

Undoubtedly, the future fortunes of the two extraterrestrial radio giants are predicated on their pending merger, which has had more twists and turns than a television soap opera. At first, it seemed like a proposal that was dead on arrival, considering the language in their charters that prevents a merger, along with stated opposition by the FCC. But then some started believing that the deal might get done. Yet that hasn't stopped a Goldman Sachs (NYSE: GS) analyst from thinking the two may have to give concessions that will further impede their progress.

CAPS investor NeroSagetrade thinks a hookup is immaterial. In his opinion, XM is hemorrhaging so much red ink that even Sirius, which he contends is in worse shape than XM, won't be able to save it:

When I think of XM Satellite Radio I think of "how are these guys still in business?" Whether or not a merger between them and Sirius occurs, XM has very little chance to turn a profit. Although their financials are no where near as horrid as Sirius, they still lose quite a [bit] of money and are sporting 1.5 billion in debt. What a pair they and Sirius will make. I [don't] see them above $3 within 3 years.

Another CAPS player, OmegaMan03, sees competing technologies eventually beating satellite radio: "Growth will stop as more consumers switch to [wireless] cell networks or wimax to stream or buy their music. Soon most cell phones will be able to at least buy and play music if not stream it from the internet."

Rattling the cage
So are these companies doomed? Should we pay them our last respects? Will they go on to a period of time in pain and penury -- along with their investors? 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 -- it's completely free! -- and let us know whether you think the Grim Reaper is just outside the door.

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