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. Revenues dry up. Margins contract. Profits evaporate. All of these signs suggest that their condition is worsening -- a financial death rattle, if you will.
Stocks in sickbay
Not all such companies are goners, but here we're seeking companies that have virtually 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 look like they might be headed for the grave based on their one-star ratings, but we'll head over to CAPS to measure our members' opinions on a company's prospects.
Then we'll palpate the pulses of the companies in question 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, while those falling between 2.70 and 2.99 are "yellow flags." Companies between 1.80 and 2.70 have a good chance of going bankrupt within two years, and those with scores below 1.80 mean the cryptkeeper is waiting.
Here's today's list.
|
Stock
|
CAPS Rating (Out of 5)
|
Current Ratio
|
Acid-Test Ratio
|
Altman Z-Score
|
Recent Price
|
|
CBL & Associates Properties (NYSE: CBL)
|
*
|
0.1
|
0.1
|
N/A
|
$5.20
|
|
Con-Way (NYSE: CNW)
|
*
|
1.5
|
1.3
|
2.73
|
$34.76
|
|
Sanmina-SCI (Nasdaq: SANM)
|
*
|
2.6
|
1.7
|
0.78*
|
$0.45
|
|
Utek (NYSE: UTK)
|
*
|
2.3
|
2.0
|
2.64
|
$4.00
|
|
Zion Oil & Gas (NYSE: ZN)
|
*
|
1.8
|
1.5
|
N/A
|
$9.15
|
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's. *As of 9/27/08.
We obviously don't know for certain whether these companies are headed six feet under, so don't short them based on their appearance here. Moreover, some companies, such as software makers and financials, don't neatly fit into the Altman Z-Score scale. Yet like the mythological figure of Charon conducting souls across the River Styx to the netherworld, we'll use the CAPS community as our guide to determine whether these stocks are destined to seriously underperform the market.
Whistling past the graveyard
With the economy still struggling to extricate itself from a recession, it's understandable that the trucking industry remains up on blocks. Industry fundamentals don't seem to be on the mend, and for its part, Con-Way lost money in two of the last four quarters. At more than 20 times forward earnings estimates, Con-Way's shares look overvalued, even though the company doesn't otherwise seem to be in danger of going bankrupt. Still, it's hard to understand investor any attraction in Con-Way and other truckers.
Trucker YRC Worldwide (Nasdaq: YRCW) had to obtain approval from its largest pension fund to defer payments and had mulled over the possibility of applying for $1 billion of TARP funding. And JB Hunt Transport Services (Nasdaq: JBHT) reported that second-quarter earnings were sliced in half, with the result that the company significantly missed analyst expectations.
Even so, the Road and Rail sector in CAPS has risen by more than 5% over the past month and Con-Way is up by more than 10%. Indeed, its shares have improved by more than 50% over the past quarter, and since its shares hit a low point in March, they've more than doubled in value.
CAPS member JerryDreamer is expecting shares to pull back based mostly on personal market expectations:
Volume is super low on the stock market and there's no volatility, which means a lot of players are sitting on the sidelines, waiting for the market to move up or down. I'm picking DOWN and taking action! The S&P will soon fall below its 20 day and 200 day moving averages. In addition, the earnings reports of banks and retailers will be dismal.
Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they be resurrected to stalk the markets once again? 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 the Grim Reaper's at the door.
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