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2 Companies You Should Run Away From

The following video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith and energy editor Joel South discuss topics around the investing world.

In today's edition, Austin and Joel discuss two companies that are being crushed by their debt levels: Caesars Entertainment and Rite-Aid. Austin believes Caesars is one of the worst plays in gaming right now and that the company went public only to cash out major shareholders from a few years ago. Austin looks at Rite-Aid's debt, which it inherited with the untimely acquisition of Brooks Pharmacy a few years ago, and is disappointed. He sees the looming Express Scripts-Medco Health merger as bad news for retail pharmacies. If Rite-Aid had an otherwise stronger balance sheet, it could partner with or be acquired by Walgreen in a move to counter the pharmacy benefit management giant. But with this level of debt, Austin doesn't see that as a legitimate consideration anymore.

Debt is a scary thing on a balance sheet and needs to be managed with care. The good news is that our Top Stock for 2012 is a retailer with a much healthier debt burden, and a superior business model. You can learn more about this potential multibagger by clicking here now.

Austin Smith, Joel South, and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

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 May 05, 2012, at 9:13 PM, ironfish1 wrote:

    I feel you have a short position on RAD..if the older folks are using more RXs, then we will see new remodel Drug/food stores, ie. mini wal-mart, gas station matter how many billion $$$s you have on the books, it can be a tax advantage spread over a very long time..

  • Report this Comment On May 06, 2012, at 12:55 PM, TMFBWItime wrote:


    I do not have a short position out on RAD. You can view all of my holdings here:

    There is a demographic shift that favors the pharmacies, but there also the overbearing force of the Express Scripts Medco Health merger that will squeeze their margins, guaranteed. Also, how will Rite-Aid remodel if they're spending all their money paying down debt? If that's the trend you'd like to play, I suggest you look at WAG or CVS instead.

    Fool on!

  • Report this Comment On May 06, 2012, at 4:17 PM, ironfish1 wrote:

    Your answer on remodel, use used fixture, get help from suppliers, any remodel store shows a 20% can you guarantee a squeeze, only a fool would do that, and you may end up eating a lot of glass....last thing, it banks are giving rite aid more time on their loans, it is stupid on there part if company is headed for bk. mahalo

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A long-term investor looking to own the best businesses available.

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