The CAPS Screen: Stay Away From These 5 Financial Time Bombs

Sift through the wreckage of beaten-down companies, and you'll likely find a few wonderful stocks. Lately, the stock market has blessed patient investors with plenty of thrashed financial companies.

But the savviest investors know that willy-nilly contrarianism isn't a sure path to riches. As financial disasters Countrywide Financial (NYSE: CFC  ) and Thornburg Mortgage (NYSE: TMA  ) illustrate, companies often get punished for all the right reasons. And in those cases, their plight can be as bad as you think, and worse.

With that in mind, I used our new Motley Fool CAPS screening tool to find beaten-down financial stocks that the online CAPS community loves to hate. These are the stocks CAPS players avoid like the plague.

They are also:

  • Capitalized at more than $200 million.
  • Down at least 25% over the past year.
  • Rated one star, the lowest possible rank, by our CAPS community.

Remember, in the first year for which we have data, one-star companies flamed out with an average loss of nearly 17%.

Company

Share Price

Market Cap

Price Drop

Ambac Financial (NYSE: ABK  )

$1.91

$548 million

(97.8%)

Fannie Mae (NYSE: FNM  )

$22.34

$21.8 billion

(65.8%)

Lehman Brothers (NYSE: LEH  )

$22.80

$12.6 billion

(69.9%)

Merrill Lynch (NYSE: MER  )

$34.54

$34.0 billion

(58.7%)

Washington Mutual (NYSE: WM  )

$5.96

$6.3 billion

(86.0%)

Data from Motley Fool CAPS and Yahoo! Finance as of June 23. Price drop calculated from 6/29/07 through 6/23/08.

Are these companies poised for a turnaround? Or is the pain just beginning? Come and join us at CAPS to let us know what you think. Our 110,000-strong (and counting) CAPS community wants to hear your opinion.

More CAPS content:

Ilan Moscovitz has never skydived, nor does he own any of the companies mentioned in this article. The Fool has a daredevil disclosure policy.


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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 June 24, 2008, at 2:41 PM, Ishortyou wrote:

    In respect to AMBAC and MBIA, they need to keep and save all the cash possible including stop paying dividends, deleverage from all their risky liabilities specially those CDS, CDO's, RMBS-ABS of uncertain value, in order to remediate their book values, once their book values are sound they need to reinstate their triple A rating again to write new low risk public bond insurance business. They can also open or extend a line of credit to make sure to continue operations and dissipate doubts.

    They are already doing these, so it will take some time to deleverage their books from uncertainties and rewrite new business again. This coming back will be the best advertisement to recruit new clients.

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