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 a company's condition is worsening -- a financial death rattle, if you will.
Stocks in sickbay
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. Here, however, we're seeking companies that have all but given up the ghost.
For help, we'll turn to the clever coroners at our 135,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,300 stocks. We've unearthed a handful of stocks that our CAPS members think might be headed for the hereafter, based on their rock-bottom one-star ratings.
Then we'll check their pulse with some quick tests for liquidity. The current ratio and quick ratio (also called the "acid test" ratio) give us an idea of a company's ability to pay its bills, and the Altman Z-Score suggests companies in danger of bankruptcy. Companies scoring 3.00 and above are considered safe, between 2.70 and 2.99 are "yellow flags," between 1.80 and 2.70 have a good chance of going bankrupt within two years, and those with scores below 1.80 could be doomed.
Here's today's list. The question is, which of these companies have a chance?
|
Stock
|
CAPS Rating
|
Current Ratio
|
Acid-Test Ratio
|
Altman Z-Score
|
Recent Price
|
|
BioCryst Pharmaceuticals (Nasdaq: BCRX )
|
*
|
4.8
|
4.7
|
(2.51)
|
$4.00
|
|
Developers Diversified Realty (NYSE: DDR )
|
*
|
1.3
|
0.5
|
NA
|
$4.99
|
|
Green Mountain Coffee Roasters (Nasdaq: GMCR )
|
*
|
1.8
|
0.8
|
6.84
|
$84.52
|
|
MBIA (NYSE: MBI )
|
*
|
1.4
|
1.1
|
NA
|
$6.59
|
|
Utek
|
*
|
2.3
|
2.0
|
3.10
|
$5.30
|
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
Obviously, we don't know for sure what will happen to these companies, so don't short them simply based on their appearance here. Some of them, like Green Mountain Coffee Roasters, have some attractive traits. Moreover, companies in some industries don't neatly fit into the Altman Z-Score scale. Yet our primary criteria for the screen remains a one-star rating from Motley Fool CAPS, which signifies that a stock may be destined to seriously underperform the market. General Motors, after appearing here a year ago, finally succumbed to bankruptcy this past Monday.
Back from the grave
BioCryst Pharmaceuticals isn't alone in earning low ratings from the CAPS community. Quite a few biotechs, including Hemispherx Biopharma (AMEX: HEB ) , Novavax (Nasdaq: NVAX ) , and Vanda Pharmaceuticals (Nasdaq: VNDA ) also sport one-star ratings, and Hemispherx and Novavax feature Z-Scores that would also indicate they're on the verge of oblivion. Novavax took a trip to the ICU just last month.
But the 239 companies in the CAPS biotech sector as a whole sport an average three-star rating, and they've enjoyed returns of better than 34% over the past 30 days. Vanda's up more than 1,000%, Hemispherix has more than quintupled, and you'll find a number of other biotech names populating the list of top-performing stocks these days.
That good news stems from a variety of reasons. Vanda shook the market when its schizophrenia drug Fanapt got FDA approval, and Novavax got a lift from the swine flu outbreak. Meanwhile, Hemispherix is still waiting for FDA approval of its chronic fatigue syndrome treatment Ampligen, but that hasn't stopped speculators from bidding up the shares anyway.
Meanwhile, CAPS member PDTBiotech thinks BioCryst is just getting a free ride from all of the activity others in the sector have been getting, and that its flu drug peramivir is unlikely to amount to much.
As has been the case with other flu drugs, you don't have to be a great drug to make money off a pandemic scare. In fact, you don't even have to be on the market. Just be good enough to convince people you've got a shot and your shares will go up....
Peramivir has also shown activity against regular ol' influenza yet it's still not on the market, as the activity wasn't high enough to support approval. ... It seems like it would be quite insane (but not impossible) for this drug to not be good enough to work on regular flu, then suddenly to have a new strain emerge which it does work on right when the drug seems to be at the inflection point for failure. This seems to be what investors who have bought into BCRX think has happened, but it's probably more likely that they don't realize the history of this company's failures with this drug.
Rattling the cage
We'll be back next time to identify more stocks that are leaving investors chilled to the bone. 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 a stock's CAPS page. Sign up today, absolutely free, and let us know whether you think a stock is headed for its demise.
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