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Wednesday's Worst Stocks in the World

Bad days. We all have them; some of us deserve them. Here are five stocks whose naughty ways drew investors' scorn on Wednesday:


Closing Price

CAPS Rating

(5 max)





Ambac Financial (NYSE: ABK  )





Yanzhou Coal Mining (NYSE: YZC  )





Hovnanian Enterprises (NYSE: HOV  )





Tibco Software (Nasdaq: TIBX  )





Ryland Group (NYSE: RYL  )





Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Well, OK, we can't exactly call these stocks naughty. There are days when five-star stocks and newsletter recommendations appear here. (Today isn't one of them.)

But if you're an investor, you'll have plenty of bad days. The trick is to avoid dating -- or, worse, marrying -- your losers. That's why I listen when our 105,000-person-strong (and growing) Motley Fool CAPS community of stock pickers speaks with a poor rating or a negative pitch. You should, too.

Thus, here is today's list of the worst stocks in the world.

We begin with Yanzhou Coal Mining, a stock that, on the whole, I like for many of the same reasons Foolish colleague Will Frankenhoff does. What I don't like is the news coming out of its home country, China.

I'm referring specifically to a report from Goldman Sachs that says the government of Shandong province has ordered miners to produce more coal ... and sell it for lower prices. (Sigh.)

Thanks, guys. Thanks a lot.

Next up is beleaguered bond insurer Ambac Financial, which has been booted from the S&P 500 and is staring down the business end of a credit downgrade from Moody's (NYSE: MCO  ) ratings service.

Executives say that the business, already hurting, could be seriously hobbled as a result. Quoting Executive Vice President Douglas Renfield-Miller, speaking at an industry conference: "Clearly we are not doing a lot of new business, and given Moody's announcement I don't expect us to do a lot of new business in the near term."

Ouch. I'd be shorting this sucker if so many others hadn't already had the same idea.

But our winner is homebuilder Hovnanian Enterprises, which made this column in December for management's poorly executed head-fake relating to the company's ability to produce cash.

I'm not surprised to find management at it again. Quoting CEO Ara Hovnanian from a company statement: "Despite a persistently challenging market environment, we successfully achieved positive cash flow one quarter earlier than we originally expected at the outset of the year." [Emphasis added.]

Really? Positive cash flow? Even if we forgive executives for failing to provide a cash flow statement to double-check the claim, my read of the balance sheet data suggests that Hovnanian is still a bleeder. The details:

Metric (in millions)

April 18, 2008

Oct. 31, 2007


Cash and equivalents




Revolving debt




Notice the difference. Had cash been flowing into the business, as Hovnanian claims, you'd expect its cash and equivalents balance to reflect more of a benefit from taking on $118.2 million in new debt.

And check out this disclaimer for Hovnanian's cash-flow calculation:

The Company uses cash flow to mean cash flow from operating activities and cash flow from investing activities excluding changes in mortgage notes receivable at the mortgage company. For the second quarter of 2008 cash flow was $65.7 million of net cash from operating activities excluding the change in mortgage notes receivable ($34.1 million from cash flow from operating activities plus the change in mortgage notes receivable of $31.6 million) less $9.6 million of net cash used in investing activities. [Emphasis added.]

Excluding the impact of tens of millions in mortgage notes receivable? Isn't that like saying, "Here's how we would have done if the economy didn't stink?" I suppose that'd be OK if retained earnings -- the money that drives long-term growth -- weren't down 47% so far this year.

By the way: You won't find language like this in last year's Q2 press release. Shocking, I know.

Hovnanian Enterprises and its all-this-head-faking-is-giving-me-a-headache management team ... Wednesday's worst stock in the CAPS world.

Do you agree? Disagree? Let us know what you think by signing up for CAPS today. It's 100% free to participate.

I'll be back tomorrow with more stock horror stories.

Fool contributor Tim Beyers, ranked 19,026 out of more than 105,000 participants in CAPS, also writes for Rule Breakers. He hopes that Keith Olbermann doesn't mind the blatant theft of his "Worst Person in the World" segment from Countdown. Remember, Keith, imitation is the sincerest form of flattery.

Moody's is a recommendation of both the Inside Value and the Stock Advisor services. Try either market-beating newsletter risk-free for 30 days.

Tim didn't own shares of any of the stocks mentioned in this article at the time of publication. The Motley Fool's disclosure policy thinks cooked spinach is the worst veggie in the world.

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