5 Stocks That Could Die in 2009

Some people saw the entire stock market mess coming years ago. Congrats if you're one of them. For those of us still trying to pick our chins up off the table, the number of companies that died (or practically did) in 2008 is staggering. In the finance world, the turmoil claimed:

  • Countrywide
  • Bear Stearns
  • Freddie Mac
  • Fannie Mae
  • Lehman Brothers
  • AIG
  • Washington Mutual

It's been a bloody year for many companies. Which might be next on the chopping block in 2009? These five top my death watch list.

Citigroup (NYSE: C  )
Financial institutions had written off about $760 billion in bad assets through September, yet the International Monetary Fund predicts that number could eventually swell to $1.4 trillion. Dr. Doom himself, Nouriel Roubini, thinks the figure will be closer to $3 trillion, meaning we could be just a fraction of the way through asset writedowns.

How much of that impending slug of bad debt do you think sits on Citigroup's books? I have no idea, and to be fair, it's less today than it was before the government insured $300 billion of Citi's assets. But with a company that has more than $2 trillion in assets supported by just $36 billion in tangible common equity, and which had to be bailed out twice in six weeks, I doubt it'll take much more than a stiff breeze to send Citi over a cliff.

General Motors (NYSE: GM  )
As Congressman Ron Paul (R-Texas) said recently, "I am afraid the American auto industry will soon learn that having billions rain down from Washington will not be the blessing one might expect."

Agreed. Some simple math here: GM is currently burning through around $5 billion per month. To plug the hole, it's asking the government for $18 billion. By my calculations, that might get the company through Easter. Tops.

To be fair, no one expects the $18 billion to be a one-time fix, and GM will hopefully start slashing costs like there's no tomorrow (literally). Still, I think reality will eventually set in, and one of two scenarios will play out:

  • The amount of money it'll take to save Detroit will become so large that current shareholders will be wiped out.
  • It will become apparent that saving GM will require throwing too much good money after bad, making a government-assisted bankruptcy look like more of a viable option.  

If you're dead set on an auto rebound, Ford (NYSE: F  ) is probably a better bet. After mortgaging $18 billion of assets in 2006, it's probably the strongest among the Big Three. Of course, that's not saying much.

Sirius XM Radio (Nasdaq: SIRI  )
With a $1 billion-plus debt load coming due in 2009, a few hundred million in cash, and a market so paranoid that even Berkshire Hathaway's (NYSE: BRK-B  ) chances of survival have been in question, options seem to be running thin for Sirius.

As fellow Fool Rick Munarriz pointed out earlier this week, experimenting with a monster reverse stock split might give it some flexibility. But that's such a Hail Mary strategy that current shareholders have to wonder what's left for them. With a current market cap of less than $500 million, raising a meaningful amount of cash seems more like wishful thinking than anything.

Level 3 Communications (Nasdaq: LVLT  )
As one of my Foolish colleagues, tech maven Tim Beyers, recently told me regarding this debt-laden company, "Winning business, but sheesh, what a mess that balance sheet is. An above-average product, for sure, but this market is so tenuous that it's tough to walk this sort of financial tightrope."

Admittedly, "death" might be too strong a word to use here -- especially since so much of the company's debt doesn't come due for several years -- but you really have to wonder about companies that put so much faith in leverage, based on assumptions about an economy that could be a wee fraction of its former self in the future. And with shares trading at under a buck, good luck raising new equity.

Cemex (NYSE: CX  )
This one's about as hit-or-miss as it gets. Shares tumbled last week, after the cement giant was able to roll over only a fraction of the debt it had planned on. But the stock surged days later on word that debt negotiations were moving right along.

Sure, those negotiations could get this company through 2009 -- but then what? An infrastructure company with more than $16 billion in debt, facing what could be a multiyear global slowdown, is a dubious proposition. If global infrastructure projects boost Cemex's bottom line in 2009 and debt is seamlessly rolled over, investors are probably A-OK. If not, and the Mexican government is forced to intervene … well, ask Fannie and Freddie shareholders what happens when the government saves the day.

For related Foolishness:

Fool contributor Morgan Housel owns shares in Berkshire Hathaway. Cemex is a Motley Fool Global Gains selection. Berkshire Hathaway is a Motley Fool Inside Value pick. Cemex and Berkshire Hathaway are Motley Fool Stock Advisor selections. The Fool owns shares of Cemex and Berkshire Hathaway. The Motley Fool is investors writing for investors.


Read/Post Comments (5) | Recommend This Article (30)

Comments from our Foolish Readers

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 December 19, 2008, at 11:31 AM, ETFinnovators wrote:

    Here are two exchange-traded products that could die in 2009 based on a small amount of net assets (around $5M each) and many investors who do not understand or are skeptical of carbon credits:

    iPath Global Carbon ETN (GRN)

    AirShares Carbon Fund (ASO)

  • Report this Comment On December 19, 2008, at 12:00 PM, Dadw5boys wrote:

    Well CX will do well with the interest ratews down and alomost every state in dire need of highwat resonstruction or highway construction. Asphalt is expensive so that will make Cement/ Concrete very viable for many years to come.

  • Report this Comment On December 19, 2008, at 12:22 PM, wolfhounds wrote:

    Hate to break the news to all you Fools, but GM started dying a very slow, painful death in the 1970's. It's blood supply is now permanently choked (market share and innovation), and it's only a small time until the heart stops. The surgeons can try to massage the heart a while, but the patient is terminal.

  • Report this Comment On December 19, 2008, at 3:18 PM, dbbfool63 wrote:

    I think there are too many opinions out there that seem to change every other day at times with some of these companies. Level 3 (LVLT) should not have been included in such an article, they have done a lot of restructuring which has not played out enough to show the true affects it will have. The economy has also played a major part, but like it was said, Winning Business which I believe has showed good growth by their wins although we will not start seeing many of those numbers until 2009. Sorry, just my opinion.

  • Report this Comment On December 26, 2008, at 6:02 AM, Muffuletta wrote:

    In the case of Cemex, debt negotiations did apparently subsequently (23 Dec 2008) produce commitments to refinance enough of the company's debt to see it well through 2009, as the author suggested might happen. Credit Suisse upgraded CX from underperform to neutral, but they "remain concerned" about the efficacy of anticipated public works stimulus packages.

    I wonder whether, if "the Mexican government is forced to intervene", that government would in fact be in a position to effectively do it, or if instead various governments (both with jurisdiction over the multinational group of banks producing the above refinancing and with Cemex operations within their respective borders) would pool their resources to do so.

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