2-Star Stocks Poised to Plunge: Moody's?

By Brian D. Pacampara
November 17, 2009 | Comments (4)

Recs

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Based on the aggregated intelligence of 140,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, credit-rating agency Moody's (NYSE: MCO) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Moody's business and see what CAPS investors are saying about the stock right now.

Moody's facts

Headquarters (Founded)

New York City (1900)

Market Cap

$5.67 billion

Industry

Credit services

Trailing-12-Month Revenue

$1.72 billion

Management

Chairman/CEO Raymond McDaniel Jr. (since 2005)
CFO Linda Huber (since 2005)

Compound Annual Revenue and Net Income Growth (Over Past 3 Years)

(3.7%) and (14.7%)

Year-to-Date Return

21%

Competitors

Standard & Poor's [a division of McGraw-Hill (NYSE: MHP)]
Fitch Ratings

CAPS Members Bearish on MCO Also Bearish on

Citigroup (NYSE: C)
AIG (NYSE: AIG)
Bank of America (NYSE: BAC)

CAPS Members Bullish on MCO Also Bullish on

General Electric (NYSE: GE)
Apple (Nasdaq: AAPL)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 20% of the 3,717 members who have rated Moody's believe the stock will underperform the S&P 500 going forward. These bears include All-Star stockdoc00, who is ranked in the top 10% of our community, and dcrednek.

Earlier this year, stockdoc00 wrote that Moody's no longer deserved any credit: "Their credibility is completely tarnished. Sooner or later, the government and investment community will wake up and realize that their information is worse than worthless."

In a more recent pitch, dcrednek echoed that bearish sentiment. Here's an excerpt:

Unfortunately for [Moody's], the current management has poisoned their golden goose. Credibility was the name of this goose. Buffett has been mourning this tragic loss. ...

There is no value here. Only an albatross of debt and calamity. ...

[Moody's] has a liquidation value of around -$5 per share not counting any of this litigation, diminished credibility, and rapidly decreasing prospects for future revenues (let alone earnings).

Massive debt, loss of economic moat, unethical-untrustworthy-incompetent management, and now litigation out their ears.

What do you think about Moody's, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. The CAPS community is waiting to hear your opinions. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Apple is a Stock Advisor selection. Moody's is a recommendation of Stock Advisor and Inside Value, and Motley Fool Options recommends writing puts. The Fool's disclosure policy always gets a perfect score.

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 November 17, 2009, at 11:44 AM, TMFBreakerForce wrote:

    "Earlier this year, stockdoc00 wrote that Moody's no longer deserved any credit: "Their credibility is completely tarnished. Sooner or later, the government and investment community will wake up and realize that their information is worse than worthless."

    "Unfortunately for [Moody's], the current management has poisoned their golden goose. Credibility was the name of this goose. Buffett has been mourning this tragic loss. ...

    There is no value here. Only an albatross of debt and calamity. ...

    [Moody's] has a liquidation value of around -$5 per share not counting any of this litigation, diminished credibility, and rapidly decreasing prospects for future revenues (let alone earnings).

    Massive debt, loss of economic moat, unethical-untrustworthy-incompetent management, and now litigation out their ears."

    Massive debt? Moody's does not have debt.

    I must state that these bear pitches do not make sense.

    In order to access the capital markets, Issuers require a rating on their debt. And in most cases, a rating from both Moody's and S&P is necessary. The biggest bond buyers in the world (I.E., Allied Capital, Fidelity, CALPERS, etc) would not buy any bond without the rating. The big institutional investors demand both the ratings and the research on industries/companies/sovereign nations/muni's etc. There is really no way around this. There are literally thousands of pages of research that show that ratings are accurate and beneficial to both the Issuing company, and the investors that purchase the debt..

    Matt

  • Report this Comment On November 17, 2009, at 11:46 AM, EiffelPane wrote:

    Why are you recycling old information? Seems to me you must have an ulterior motive! Do you?

  • Report this Comment On November 17, 2009, at 11:56 AM, TMFHousel wrote:

    "There are literally thousands of pages of research that show that ratings are accurate and beneficial to both the Issuing company, and the investors that purchase the debt."

    Really? I'd like to see those. And here's one that shows just the opposite.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=167412

  • Report this Comment On November 17, 2009, at 6:52 PM, brightsideLP wrote:

    It was my Moodys statement - not dcrednek.

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