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 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. Here we're seeking companies that have all but given up the ghost.
For help, we'll turn to the clever coroners at our Motley Fool CAPS community, where 140,000 members give the thumbs-up or thumbs-down to about 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.
Next, we'll run some quick tests for liquidity. The current ratio and the 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 filing for bankruptcy protection. Companies scoring 3.00 and above are considered safe, those between 2.70 and 2.99 are "yellow flags," those between 1.80 and 2.70 have a good chance of filing for bankruptcy within two years, and those with scores below 1.80 are doing the worst of all.
Here's today's list. The question is, with our primary screen being those stocks that CAPS investors have given one-star status to, are these companies only mostly dead, or have they already given up the ghost?
|
Stock |
Current Ratio |
Acid-Test Ratio |
Altman Z-Score |
Recent Price |
|
|---|---|---|---|---|---|
|
Gray Television |
* |
0.9 |
0.8 |
0.11 |
$2.50 |
|
Iowa Telecommunication Services |
* |
0.4 |
0.3 |
0.64 |
$12.27 |
|
Lee Enterprises |
* |
0.6 |
0.5 |
0.52 |
$3.67 |
|
Starwood Hotels & Resorts |
* |
0.8 |
0.2 |
1.38 |
$33.86 |
|
Talbots |
* |
1.0 |
0.5 |
1.11 |
$10.66 |
Sources: Motley Fool CAPS and Capital IQ (a division of Standard & Poor's).
We obviously don't know whether these companies are headed six feet under, so don't short them based on their appearance here. Moreover, some companies, like software makers and financials, don't neatly fit into the Altman Z-Score scale. 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
Health-care reform has proven itself useful for more than just scaring the bejeezus out of insurance industry executives. The competing visions and escalating rhetoric have created a rich source of income for the media.
Gray Television was teetering on the brink of oblivion a year ago, after ratings agency Moody's cut its credit ratings on the pos. That sent the company deeper into junk territory, on the probability that its revenue and cash flow would drop significantly, and that the company might default on its debt. Apparently, no one saw how passionate the debate about reforming the nation's health-care system would become.
Gray Television just increased its forecast for third-quarter operating results, on the strength of advertising revenue generated by the debate. Last month, CAPS member Gumpster predicted that the debate might help the company:
The stock is really beaten down due to its debt and the sector being out of favor. Nonetheless, this company's station base is terrific, with lots of leaders in local news. I'm putting it up for a pop with an increase in political ad revenue this season, but may decide to hold on for a while to capture some of the underlying value.
Yet such short-term infusions only mask the problems that old-line media still faces. The New York Times
Rattling the cage
Are these companies doomed to underperformance? Or will they be resurrected? 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 what you think.
