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, 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
|
|
Beazer Homes (NYSE: BZH )
|
392%
|
($18.06)
|
(44.7%)
|
90.9%
|
|
Bon-Ton Stores (Nasdaq: BONT )
|
427%
|
($10.80)
|
(8.8%)
|
95.2%
|
|
Gannett (NYSE: GCI )
|
253%
|
($19.16)
|
(13.1%)
|
69.9%
|
|
Goodyear Tire & Rubber (NYSE: GT )
|
102%
|
($3.54)
|
(17.7%)
|
81.1%
|
|
MGM Mirage (NYSE: MGM )
|
128%
|
($4.04)
|
(15.6%)
|
71.0%
|
*All data from Capital IQ as of Oct. 13.
Those are heady gains here for such a sad-sack bunch of stocks. None has turned a profit and all have decreasing revenues, and all 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 high-quality, cash-rich names like Netflix (Nasdaq: NFLX ) and Apple (Nasdaq: AAPL ) . 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.
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This article was first published on Sept. 8, 2009. It has been updated.
Alyce Lomax does not own shares of any of the companies mentioned. Netflix and Apple are Stock Advisor picks. The Fool has a disclosure policy.
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