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 sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. But here 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 look like they might be headed six feet under 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 those companies 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 scoring between 2.70 and 2.99 are "yellow flags," Those landing 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
|
|
Alto Palermo (Nasdaq: APSA )
|
*
|
0.7
|
0.5
|
N/A
|
$5.97
|
|
Cott (NYSE: COT )
|
*
|
1.2
|
0.7
|
2.39
|
$7.10
|
|
MTR Gaming Group (Nasdaq: MNTG )
|
*
|
0.5
|
0.3
|
1.12
|
$3.64
|
|
New York Times (NYSE: NYT )
|
*
|
0.7
|
0.3
|
1.42
|
$6.50
|
|
United Airlines (Nasdaq: UAUA )
|
*
|
0.7
|
0.4
|
0.21
|
$3.44
|
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
We obviously can't say for certain that these companies are headed for the graveyard, so don't short them based on their appearance here. Moreover, some companies, such as like 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
The move by United Airlines to force some travel agents to foot the bill for credit card processing fees is either a slick, cost-cutting maneuver like those that helped it realize a profit in the latest quarter, or it's an indicator of desperation that could precede its demise.
While the American Society of Travel Agents says its members drove $69 billion worth of business to airlines in 2008, the airlines typically have to pay about 2%-3% of the cost of a ticket for the card processing fees. As airlines battle for survival in this recession and corporate travel budgets are slashed, passing along fees to travel agents seems like an easy way to cut costs. However, agents fear it as a way to force customers to book flights using United's own ticketing system, rather than those offered by global distribution service companies. Southwest Airlines (NYSE: LUV ) is one airline that maintains exceptional control over its ticketing process by directing purchases almost solely to its website, but other airlines have not said that they have plans to adopt similar moves.
The cost-shifting might save United money, but it has an added benefit -- it does an end-run around current legal agreements. Under United's new system, travel agents might become liable for the airline's inability to perform, since agents are no longer just intermediaries but rather vendors. If United were to go bust, the agents would become unsecured creditors of the carrier, with little ability to recover the money they had already paid it. This could be a last-ditch move by an airline that analysts currently rate as the second most likely candidate, behind US Airways (NYSE: LCC ) , to go under.
CAPS member MOSCapital doesn't see much to get excited about, despite the recent cost-cutting ventures:
United Air Lines is a company which at $4.39 is trading at 23 times earnings in a terrible industry. It has negative cash flow, negative earnings, negative return on investment, negative return on equity, negative return on assets, negative profit margins, negative cash return, and about a million different other things that are negative. ...
Bottom Line: A horrible industry combined with more loss years than not and a horrible just about everything else, makes this a no brainer no investment.
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 is at the door.
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