Sell These Dead-Cat-Bounce Stocks Now

Stocks have rallied sharply over the past few weeks. But just as good companies are kicked to the curb when the market sinks, plenty of bad companies get unjustly rewarded when the market bounces.

Look, we're still in the midst of a credit crunch. The number of newly unemployed people applying for jobless benefits recently reached a six-year high. The never-ending housing crisis could actually be much worse than we think. We could be heading into a serious and prolonged economic slowdown.

Bottom line, there are plenty of reasons to think the stock market's recent rally is nothing more than a dead-cat bounce.

Right now, my trusty Motley Fool CAPS screen is coming up with a slew of companies whose stock prices have soared over the past several weeks. Yet these companies probably don't deserve the market's generosity, since they also have:

  • Negative three-year earnings growth rates.
  • One- or two-star ratings (out of five) from our CAPS community.  

Here are some potential dead cats that might deserve to be sold:

Company

CAPS Rating

4-Week Price Change

3-Year Earnings Growth

99 Cents Only Stores (NYSE: NDN  )

**

26.3%

(50.2%)

Career Education (Nasdaq: CECO  )

**

32.2%

(36.1%)

Dean Foods (NYSE: DF  )

**

24.9%

(23.8%)

Peet's Coffee & Tea (NYSE: PEET  )

**

26.8%

(3.7%)

Principal Financial Group (NYSE: PFG  )

**

23.3%

(5.0%)

RadioShack (NYSE: RSH  )

*

37.6%

(2.6%)

Ruby Tuesday (NYSE: RT  )

*

25.5%

(28.8%)

Data from CAPS. Price change from July 18 through Aug. 15, 2008.

Remember, since we launched CAPS in late 2006, one-star companies underperformed the S&P 500 by 11 percentage points, annualized. Two-star companies underperformed by five points.

Don't settle for these potential losers. Come hang out with us on Motley Fool CAPS, and let our 115,000-strong (and counting) CAPS community help you find winners.

More Foolishness to digest:

Matthew Argersinger doesn't own shares in any of the companies mentioned. The Fool has a delicious disclosure policy.


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