Deathbed Stocks Revisited

Over the past 12 months, we've been chronicling companies that appear to be on their deathbeds. As we note, not every company will give up the ghost, but since our original column, quite a few have either disappeared entirely or seen huge drops in their share prices: Fannie Mae, Merrill Lynch, Lehman Brothers, Bear Stearns, Washington Mutual, and XM Satellite Radio, to name just a few.

We check for stocks that have earned the lowly one-star rating from the savvy investors in our Motley Fool CAPS community, then pair that information with various financial ratios that ominously suggest a stock's impending doom. Over the first 20 months of the service's existence, CAPS data shows that newly minted five-star stocks offer the best opportunities for investors, while the lowest-rated companies fared worst. The tales of woe left by the companies that have appeared in this column underscore that data.

Let's take a look at some more of those stocks that we thought were in serious trouble, thanks to their one-star CAPS rating.

Stock

Price at First Appearance

Price Today

% Chg

AnnTaylor Stores (NYSE: ANN  )

$28.73

$5.44

(81.1%)

Gatehouse Media

$4.91

$0.04

(99.2%)

Esmark

$16.81

$19.25*

14.5%

NaviSite

$3.65

$0.30

(91.8%)

Riviera Holdings

$16.02

$4.09

(74.5%)

ValueVision Media

$4.99

$0.30

(94%)

Journal Communications (NYSE: JRN  )

$5.81

$2.26

(61.1%)

AirTran Holdings (NYSE: AAI  )

$3.25

$4.46

37.2%

Alesco Financial

$2.77

$0.46

(83.4%)

Herley Industries

$15.88

$10.96

(31%)

Playboy (NYSE: PLA  )

$5.74

$2.04

(64.5%)

Columbia Labs

$3.60

$1.05

(70.8%)

Macy's (NYSE: M  )

$22.86

$8.71

(61.9%)

Meritage Homes (NYSE: MTH  )

$17.15

$11.31

(34.1%)

Williams-Sonoma (NYSE: WSM  )

$24.85

$7.34

(70.5%)

*As of 8/5/08, acquired by Severstal OA.

Although none of the companies from this series found itself planted in the graveyard of bankruptcy, at least four seem to be on the verge of complete devaluation. Gatehouse Media, primarily a publisher of weekly newspapers across the country, is notably teetering on the edge of the abyss.

Whistling past the graveyard
One of the only companies to have increased in value since it was profiled is AirTran Holdings, a short-haul discount airline. Earlier this year, soaring oil prices and overcapacity issues caused major problems for the company, which ultimately led the carrier to a rare annual loss. However, now that oil's price has fallen dramatically, AirTran has cut capacity and sold off some of its jets, and it is now pursuing a path to profitability again.

In October, CAPS member triphunter thought AirTran was worth holding for at least a while longer, considering the changing situation with the carrier's cost inputs:

Not the biggest player, but over the years AAI have held their own. With gas prices where they are and the upcoming holidays I'd say this is worth holding til the end of the year.

Macy's has been less fortunate, still reeling from the decline in consumer spending in this holiday season. While it's been keeping its doors open 24 hours a day in some areas to squeeze out any last-minute Christmas shopping, Macy's has also burned the midnight oil to shore up its financial condition by amending its credit agreements with lenders. That's going to cost the department store chain some extra cash, but ought to give it sufficient liquidity to keep the bear away from the door for the time being.

CAPS member rofgile isn't so sure all that's going to help, since it will still probably report lousy sales and earnings for the quarter. He thinks a bankruptcy filing is still in the offing:

I doubt that stores made their sales and still had decent margins this Christmas season. The news will come in January/February that they did badly. Next to follow will be bankruptcies and mergers.

Rattling the cage
We'll be back next month to identify more stocks that might be headed for the boneyard. In the meantime, it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from your favorite stock's CAPS page. Sign up today, absolutely free, and let us know whether you think a stock is headed for its demise.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.

Playboy Enterprises is a Motley Fool Rule Breakers recommendation. Meritage Homes is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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