Avoid This Garbage

I've got it on good authority that there are people who actually search through the Dumpsters behind grocery stores to find food that might still be edible.

Gross, right?

So why are you doing the same thing in your portfolio?

What's that rotten stink?
The recent rising market tide has floated all boats. Even AIG (NYSE: AIG  ) , 80% owned by the government and absolutely emblematic of all that has gone wrong in recent years, is up a couple of hundred percent!

And it's not the only one. The stocks of many beleaguered, struggling, debt-laden, second-string companies have soared for no good reason, beyond the possibility that some investors think there might be money to be made from sifting through the market's trash bin.

Just take a look at this garbage:

Company

Price Appreciation (6 months)

Earnings/Loss Per Share (LTM)

Revenue Increase/Decrease (LTM)

Total Debt-to-Capital

Avis (NYSE: CAR  )

2,316%

($11.60)

(10.8%)

98.3%

Krispy Kreme Doughnuts (NYSE: KKD  )

192%

($0.09)

(11.4%)

47.2%

Sirius XM (Nasdaq: SIRI  )

357%

($1.72)

119%

95.8%

Ruby Tuesday (NYSE: RT  )

579%

($0.35)

(8.2%)

54.2%

*All data from Capital IQ and MSN Money.

Those are heady gains here for such a sad-sack bunch of stocks. None has turned a profit in the past 12 months, only one has a revenue gain, and all four of these companies have formidable amounts of debt, which should give investors pause.

Add a harsh consumer spending environment to our economy's plentiful difficulties, and my advice to investors is to leave speculative garbage alone -- lest it poison your portfolio.

Don't get stuck holding the garbage bag
In other words, investors are choosing to spin the metaphorical wheel on beleaguered garbage stocks that may not even make it out of the current economic environment alive.

Sure, a quick double would be nice, but it's all too likely that the investors hoping such stocks will rise won't know enough to get out before their shares start to inevitably fall again.

Instead of rummaging through the garbage, find stocks connected to high-quality, unspoiled companies that aren't likely to leave investors holding a bag of fetid losses.

At Motley Fool Stock Advisor, we look for strong, well-run companies that have bright futures and strong balance sheets. Our picks include everything from little-known innovators to stalwarts like Amazon.com (Nasdaq: AMZN  ) and Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) . On average, our portfolio is now beating the S&P by 44 percentage points.

If you're having a hard time separating the fresh ideas from the trashy ones, just click here for a free, 30-day trial to Stock Advisor. There's no obligation to subscribe.

Already subscribe to Stock Advisor? Log in at the top of this page.

Alyce Lomax does not own shares of any of the companies mentioned. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor picks. Berkshire Hathaway is also an Inside Value choice. The Fool owns shares of Berkshire Hathaway. The Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (28)

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 September 08, 2009, at 2:59 PM, vairman wrote:

    Again, more bashing of Sirius stock! They will post a profit in the next quarter, but of course, no mention of that in this article. Come to think of it, what is that horrible stench? Oh yeah, it's this rotten article!

  • Report this Comment On September 08, 2009, at 3:16 PM, ByrneShill wrote:

    You haven't kissed the ground that Karmazin walks on. Prepare to be poo-pooed into oblivion by the sirius fanatics.

  • Report this Comment On September 08, 2009, at 4:55 PM, dedmunds wrote:

    HOW ABOUT AVOIDING YOUR GARBAGE!!! TIRED ABOUT YOUR KIND JUST BASHING SIRIUS. GET A LIFE AND SMELL YOUR OWN ROTTEN STINK!!!

  • Report this Comment On September 08, 2009, at 5:10 PM, mdtopper wrote:

    Easy does it fellas. Sirius is strill yet to show a profit and has a debt to equity ratio in the stratosphere. Ms Lomax is just tellin' it like it is.

  • Report this Comment On September 08, 2009, at 5:23 PM, dedmunds wrote:

    mtopper, Sirius may still have some problems to overcome but no need to trash these Stocks like she did!!! I thought she was supposed to be a Proffesional not sifting through market's trash bend as she puts it!!!

  • Report this Comment On September 08, 2009, at 5:25 PM, jayan25 wrote:

    Sirius, while a nice idea. just can not support the financial model based on a non-tiered fee. The customers that they are losing are the ones that refused to resign up.

    The business model could not work when they were separate companies and can not work now. Too much expense and if they charge fees to cover that expense, people will drop them as they are all ready doing. What was left out was the poor retention rate of existing customers.

    Finally, Sirius has only a short time to get it's stock above 1$ before being de-listed then they will declare bankruptcy and all the customers that paid for a year will lose their shirts.

    The only way to even stand a chance of making this business model work would be to drop both Stern and Oprah and cut station offerings.

  • Report this Comment On September 08, 2009, at 5:48 PM, jddubya wrote:

    "And it's not the only one. The stocks of many beleaguered, struggling, debt-laden, second-string companies have soared for no good reason, beyond the possibility that some investors think there might be money to be made from sifting through the market's trash bin."

    Ha ha, that would be me. As long as I'm able to stay ahead of the rest of the dumpster divers (by reading MF articles of course!)

  • Report this Comment On September 08, 2009, at 6:06 PM, plange01 wrote:

    all of the car rental stocks had a great run but as with the summer their run is over!!! a strong sell on car,htz,dtg......

  • Report this Comment On September 08, 2009, at 9:41 PM, Fool wrote:

    siri seem to have pull from the top why i dont know but i was down to 5 cents and thought if i bought if then by break even would drop from 2.89 to .19 cents but i failed to follow thru since it seem is was going out of business however when it was bailed out earlier this year it got some breathing room . also it is true that some do drop the service however i still think the name is all over the place and i hope the big company has turned a corner and gets back to 1.00 by reverse split of on its own. seems alot of people want this to pull out of the tail spin and it is starting up so lets hope the talking heads against its success will be crying and scratching their heads when i blasts thru the 1.00 or higher level thanks siri fans and un fans

  • Report this Comment On September 08, 2009, at 9:56 PM, jm7700229 wrote:

    It seems that Sirius has a lot of loyalists. Of course, it will need a lot to climb out of the hole (I won't sat Dumpster). I figured that the half billion dollars they paid to Howard Stern would do them in. I'd sure like to see the analysis on that one.

    Anyway, any company that will sponsor Howard Stern will never be in my portfolio (and I cancelled my subscription to XM when they were bought out). I do believe that every company should have some ethic beyond that of the legal profession: "do anything that makes money."

    I'm hoping that any company that enriches a racist hatemonger in order to attract the lowest elements of society will fail.

  • Report this Comment On September 09, 2009, at 12:48 AM, Fool wrote:

    You guys have been calling SIRI trash for months. What's your game? I've made money several times on it, and plan to make money on it again. I guess we can't all afford Berkshire Hathaway or other stocks at 80 bucks a pop. Maybe by the time I make a few more thousand on SIRI, I'll take a stab at one of the more expensive ones.

    For my money, buy low and sell high still works.

  • Report this Comment On September 09, 2009, at 11:09 AM, iggyThistlewhite wrote:

    You know what they say...one man's trash is another man's treasure...SIRI is my Treasure!

  • Report this Comment On September 09, 2009, at 1:26 PM, 123spot wrote:

    Nice job Alyce, and a timely warning re: trash. I have noticed many fool authors making a genuine effort to emphasize caution, having learned from the too recent go-go past. I thank you all for these reminders. Another good article today in that vein was the argument for holding cash. These fast climbs out of doom are starting to look more like psychosis than exuberance and I am taking your sound advice. Thank you.

  • Report this Comment On September 09, 2009, at 2:45 PM, frankwweiwuw wrote:

    Calm down! The sky is not falling. We should never be afraid of the end of the world when investing in stocks because if that day really comes, what purpose you keep money for? And we should know that the more banks collapse the better position AIG, FNM and FRE will be in.

    Usually people don’t buy penny stocks because they may go bankrupt. But penny stocks like AIG, FRE, FNM are quite a different story because they are backed by government with billions of taxpayers’ money. So government won't allow them to go bankrupt and taxpayers don’t want them to go bankrupt.

    Regarding real price of stocks, that’s a gimmick. Stock prices never really mirror their true value because nobody knows what their true value is. They all depend on your imagination. And stock markets are a place where people like to imagine. BTW, stock markets have always been cyclical as the world is itself cyclical which is because human beings’ emotion is always cyclical.

    In addition, stock markets are always forward looking. You won’t understand why those penny financial stocks surged in August until sometime next year. But for two things i am sure why they have been up so much. The fundamental one is there have been now 6.8 billion people in the world and population is increasing at historically astronomical levels, so houses are one of the hardest best assets you can rely on. They should be worth more than Google at $445/share, because you don’t have to have google but you have to live in a house. The other technical one is that they have been beaten up and shorted so badly. Buying these stocks now will guarantee your money back a lot more than $2 per share.

    Lastly, will you ever believe in so-called financial or stock experts? Are they ever right? Very rare. If you look back history you will find this. They either pretend to know a lot or they are just liars, either way, they are always trying to put your money in their own pockets. They want you to dump them so they pick them up because they have missed out on the rally since March. A simple math will tell you that even taxpayers own 80% of AIG, FRE and FNM, 20% of them is still worth $300/share, $15/share and $15/share, respectively. I believe those buy AIG, FRE and FNM now will see a flood of money toward them in the coming 24-48 months.

  • Report this Comment On September 13, 2009, at 7:52 PM, dragracerdad wrote:

    I'm going back to listening to 8-tracks. I'm not kidding, I'm Sirius.

  • Report this Comment On September 17, 2009, at 12:30 AM, bluchpsrck wrote:

    I can count on you like a Meteorologist, Always Wrong!

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