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Throw This Stock Away

The house rules are simple in this weekly column.

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, YRC Worldwide (Nasdaq: YRCW  ) .

More mud than flap
We may be at the end of the road for YRC. The heavily traded shares of the trucker specializing in less-than-truckload shipments are down to a buck and change today, but investors may want to think twice about catching this falling jackknife.

YRC is bracing its investors for a possible bankruptcy filing, making Nil City the likely final destination for the company's speculative shares.

It didn't seem that way just a few months ago. YRC appeared to be striking a tentative agreement with the Teamsters and FedEx's (NYSE: FDX  ) move to combine its freight businesses back in September was cheered by investors as a precursor to nix the cutthroat pricing that had been plaguing the less-than-truckload shippers.

The euphoria didn't last long.

In its 10-K filing this week, YRC warns that it has missed its deadline to gain approval for its restructuring plan from some pension funds. It's easy to see why major investors are nervous. The restructuring plan entails some heavy dilution.

Is that really worse than a bankruptcy filing that will likely wipe out all equity investors and return pocket change on the dollar -- if that -- to its creditors?

We've seen General Motors and Six Flags successfully emerge from bankruptcy reorganization last year. If consumer-facing companies can dust themselves off in the rebirthing process with less baggage and healthier balance sheets, YRC itself should have no problem in continuing to keep trucking despite the potential filing.

Equity investors are the ones that would pay the stiffest price, as their stock certificates get canceled with little chance in getting anything back beyond a tax loss write off. YRC's stock may be at its cheapest split-adjusted level in ages, but it's never been more risky.

Step aside unless you've got the nerves of a riverboat gambler.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. I typically go with related companies, but this time I'll address YRC's 1-for-25 reverse split last year. The trucker's plunge since the zero-sum maneuver to retain its exchange listing is going to give reverse stock splits a bad name, but it's not like that. A reverse split is only as good as the quality of the company swapping out a set number of shares for a single share at a multiplied price. My three fill-ins this week will be companies that declared reverse splits and lived to tell the tale.

  • (Nasdaq: PCLN  ) : The high-flying travel portal wasn't exactly taking off after the dot-com bubble popped. Taking its "name your price" mantra to heart, Priceline declared a 1-for-6 reverse split eight years ago. The website operator's been trading comfortably in the triple digits for a while now, fueled by its enviable streak of topping Wall Street's profit targets in each of the past 19 quarters.
  • Coeur d'Alene Mines (NYSE: CDE  ) : The silver mining specialist with a few interests in gold went in for a 1-for-10 reverse split when its stock was at $1.40 nearly two years ago. The split-adjusted shares have gone on to more than double with the stock trading just above $30 these days. Coeur is coming off a blowout quarter, and last month raised its 2011 production targets.
  • Biglari Holdings (NYSE: BHI  ) : CEO Sardar Biglari took some heat when the Steak 'n Shake owner declared a reverse stock split. Why would a company that's already trading in the double digits go for a 1-for-20 reverse? I dismissed it as little more than Warren Buffett envy, and it may be right since Biglari is angling for another reverse split even though the stock is trading comfortably in the triple digits. It's just skin art for the ego. What matters here is bottom-line performance, and Biglari has come through with market-thumping results for three consecutive quarters.

I'm sorry, YRC. Maybe I'll warm up to the more shareholder-friendly version that emerges from the bankruptcy wreckage.

General Motors is a Motley Fool Inside Value choice. FedEx and are Motley Fool Stock Advisor recommendations. The Fool owns shares of Biglari Holdings and FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (2)

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 March 17, 2011, at 7:13 PM, frankinCA wrote:

    I don't like the way Smart Money is using Motley Fools articles in their display of portfolios news pertaining to particular stocks in a portfolio. I am following CDE and when I looked at my portfolio I see a news article pertaining to CDE titled "Throw this stock Away"., which one would mean CDE. The throw away stock is YRCW and is not related to CDE and the way the news is gathered for my portfolio allows this article title to appear as negative news about CDE. This is not news as well but an opinion article that Motley Fool probably pays Smart Money to use as fodder.

    The Motley Fool/Smart Money programmers must learn how to differentiate the stock news pertaining to the article and not to a stock that is is referenced but with just the opposite characteristic of the stock the title refers to. Could it be a way for a writer to publish a legitimate article if fully read, to cause a selling action for anyone who trusts Motley Fools writers and reads the title next to their stock quote. Whether to beat the stock down to cover a short or beat it down to buy in at a lower price are two possibilities I don't want to accept.

    If an article is negative about a stock then it's name should be in the title so I/we can see it is not about the stock being followed. Simple but a requirement in my book. Positive as well, of course.

    PLEASE no more shadow titles to indirectly try to manipulate the market!!!!!!!!!!!!!!!!!!!

  • Report this Comment On March 18, 2011, at 4:12 PM, fuckfool222 wrote:

    motleyfool is the bouncer of big fund, just spread no data backup comments. sometimes, I don't understand are they really serious or just make a fun.

  • Report this Comment On March 18, 2011, at 4:12 PM, fuckfool222 wrote:

    motleyfool is the bouncer of big fund, just spread no data backup comments. sometimes, I don't understand are they really serious or just make a fun.

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