Wall Street enthusiasm for the companies listed below is at best tepid yet our Motley Fool CAPS members would disagree. They've bestowed on these companies top honors, signaling their belief they'll outperform the market.
So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
CAPS Rating (out of 5)
Wall Street Bullish Sentiment
CAPS Bullish Sentiment
|Excel Maritime (NYSE: EXM )||****||67%||96%|
|SKECHERS (NYSE: SKX )||****||67%||94%|
Source: Motley Fool CAPS.
As much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
Drilling is drying up
Still well below where it started the year, the Baltic Dry Index at least is clawing its way back up, but it still might be a case of too little, too late for dry bulk shippers such as Excel Maritime and Eagle Bulk Shipping (Nasdaq: EGLE ) , which is in negotiations with its lenders in a bid to reorganize its finances.
Excel's financial condition hasn't materially improved, and it is caught between the Scylla and Charybdis of a high debt load and an industry that's still swirling around the whirlpool. Excel ended 2011 with more than $1 billion in debt and just $54 million in cash on its balance sheet. It turned 2010's profits into losses as charter rates fell because of an industry glut of vessels. Despite near record high scrapping levels and a 30% drop in delivery rates, dry bulk fleets still expanded at a double-digit rate, the second year in a row it has grown at such levels.
Even if it beat analyst expectations in the fourth quarter, a development that heartened CAPS member Bested6559, I don't see what the catalyst is for the dry bulk specialist to break free from the vortex the industry is in. For that reason, I've rated Excel to underperform the markets over the next few years and wouldn't be surprised to see it sink beneath the waves like General Maritime.
Two left feet
After some disastrous and well-publicized management decisions with its toning footwear, SKECHERS still looks like it has its shoelaces tied together. It made headlines -- and sales -- when its toning shoes hit retail shelves, as they were something of an innovation, but it was also apparent to many the craze was just a fad on the level of Crocs (Nasdaq: CROX ) .
SKECHERS apparently wasn't prepared for the wave of imitators that inundated the market, and it responded by lowering prices and flooding the market only to watch profit margins run away. In the end, SKECHERS was left with huge levels of inventory that continue to weigh on its operations. Sales tumbled in the fourth quarter and profits turned to steep losses as it suffered from weak sales across its product lines.
Yet where Crocs has learned from its mistakes and now is a full-fledged footwear company offering interesting and popular shoes that don't look anything like its idiosyncratic footwear, there don't appear to be signs that SKECHERS is following suit and trying to transform itself. It may be transitioning from a third-party distributor to a wholly owned subsidiary model in Japan where it's counting on doubling business in three to five years, but accomplishing its goals is a challenge.
It's still facing problems similar to those that tripped up Crocs and Deckers Outdoor (Nasdaq: DECK ) , namely higher input costs. Fuel, commodities, and labor are all weighing down the shoe sector as well as the rest of the economy. SKECHERS doesn't offer anything that suggests it will be able to run away from that.
I bought shares of SKECHERS after its toning shoe mishap, thinking it was a "one and done" effect from which it would be able to recover. But each quarter seems to offer more stumbles and little hope of regaining its footing. I own the stock still, but I'm heading over to CAPS right now to rate it to underperform the market for at least the next year. Join me on the SKECHERS CAPS page and add it to the Fool's free portfolio tracker to see if it can become a long-distance runner again.
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