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. Revenue dries 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 110,000-strong Motley Fool CAPS community, where players give the thumbs-up or thumbs-down to more than 5,500 stocks. Our first year of collecting 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.
First we'll 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. We've also added the Altman Z-Score to predict the likelihood of bankruptcy, but please note -- it's not designed to be used in every situation, and there are some limitations to it.
A company scoring 3.00 and above is considered safe, scores between 2.70 and 2.99 are in the "yellow flag" zone, scores between 1.80 and 2.70 mean the chance of going bankrupt within two years is good, and scores below 1.80 mean "Watch out below!"
Here's today's list. The question is, are these companies only mostly dead, or have they already given up the ghost?
|
Stock
|
Current Ratio
|
Acid-Test Ratio
|
Altman Z-Score
|
|
Affiliated Computer Services (NYSE: ACS)
|
1.9
|
1.6
|
2.59
|
|
Delta Air Lines (NYSE: DAL)
|
0.9
|
0.6
|
0.43
|
|
Hydrogenics (Nasdaq: HYGS)
|
2.0
|
1.3
|
(4.25)
|
|
Lexmark (NYSE: LXK)
|
1.4
|
1.0
|
3.69
|
|
Syntroleum (Nasdaq: SYNM)
|
9.1
|
9.0
|
(13.53)
|
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
We obviously don't know whether these companies are headed for a dirt nap, so don't short them based on their appearance here. Even so, stocks that CAPS investors have marked down to one star may be destined to seriously underperform the market in the immediate future.
Power up, stall out
Despite possessing technology that potentially could help reduce our reliance on foreign fossil fuels, hydrogen-generation and fuel-cell developer Hydrogenics has been been going nowhere fast. General Motors (NYSE: GM), itself a potential deathbed-stock candidate, is Hydrogenics' largest shareholder and customer, owning 12% of shares and providing 9% of company sales. Hydrogenics has managed to rack up consistent losses, leading to poor stock performance; it's only just recently regained compliance with the Nasdaq exchange.
Top-rated CAPS All-Star member kristm writes that any company touting hydrogen as an alternative fuel is simply trying to pull the wool over your eyes:
Hydrogen isn't a viable source of energy. It is, at best, a medium for transporting energy from one place to another or for making it easier to transport energy in a vehicle or smaller machine/device. Hydrogen requires a good bit of overhead to make, and the electricity used to make it (by separating oxygen and hydrogen in water) is about the same (or greater) as the energy contained in the hydrogen. So any company claiming to produce or be involved in the production of hydrogen as an alternative source of energy is lying to you.
Tastes like chicken
Syntroleum is another alt-fuels play seeking to gain a foothold in the "green gas" space. It's entered into an agreement with Tyson Foods (NYSE: TSN) to build biodiesel plants that will use low-grade chicken fat and grease too impure for traditional biodiesel conversion processes. By running that raw material through a proprietary "Bio-Synfining" process, it aims to create a high-grade alternative fuel.
As "tasty" as it sounds, Syntroleum has also posted consistent losses, and it possesses high risks should its technology fall flat. It's also felt the frequent need to issue stock and dilute existing shareholder stakes. For investors like CAPS member CAPSLOCKBANDIT, though, the technology -- and the deals -- keep this company interesting:
There is definitely some risk on this one though. Not only is this stock incredibly volatile they also don't really have anything until a refinery is finished. They are also having money problems which explain the stocks low price as of this writing. This is a speculative pick but if it hits i think it will blow its previous (25.50) high in the dust after a few years running at production. That is one hell of a multibagger even if it does take a few years.
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.
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