Ever since I began singling out attractive stocks trading in the single digits in 2001, I have been an advocate for taking chances on the right low-priced stocks.
Every month -- like I did last week -- I discuss five stocks that I feel are bottoming out at these low-hanging levels. I try to emphasize the risks involved in these downtrodden stocks, but today I'm going to cross over and pick out companies that I think aren't going to bounce back anytime soon.
There are certainly plenty of stocks to choose from these days, so let's dive right into the big stocks with little prices that I am avoiding right now.
GE became the fifth stock in the 30-stock Dow Jones Industrial Average to dip into the single digits last week. I get the feeling it may stay there awhile.
The company's near-term prospects are pretty grim. Analysts see earnings plunging by nearly 30% this year on a 5% top-line slide. It may very well be worse. The same GE that under former CEO Jack Welch used to routinely trounce Wall Street expectations hasn't topped market profit targets in more than a year, missing estimates in two of the past four quarters.
Capital finance remains GE's largest segment, and it remains under pressure, like most companies with pronounced exposure to financial services these days. It is holding up better on the energy infrastructure side, but it's hard to rally around GE when ad revenue is sliding at NBC Universal and the prospects for an uptick in demand for the company's consumer and industrial products appear iffy at best.
Yes, the plunging share price and the company's tenacity in keeping its dividend intact give GE a deliciously tempting yield right now, but I can't be the only one expecting this to be the next major conglomerate to slash its payout.
It's hard to get excited about media companies right now, but Time Warner's flaws cut even deeper. Revenue continues to shrink at AOL, as one of the few dot-com heavies going the wrong way in the online migration. It has too much exposure in its fading print business. Even on the theatrical side, its Batman franchise may have peaked this past summer and there isn't much left as the Harry Potter juggernaut winds down. Don't even get me started with the company's cable properties at a time when consumers are finally starting to cut ties with their cable providers.
In these turbulent times, investors have learned to disregard the deluge of balance-sheet writedowns, but I'm still not over the $24.2 billion asset-impairment charge that Time Warner recorded earlier this month. You shouldn't be either.
It's been a rough couple of years for the company that once revolutionized the way personal computers are sold. Unfortunately for Dell, it's not going to get any better. Analysts see revenue and earnings falling in the company's brand-new fiscal year.
Dell reports earnings on Thursday. This isn't Hewlett-Packard
Given the pessimistic assumptions about Thursday's report, I can see Dell temporarily showing signs of life if its report isn't a complete stinker, but reality and gravity will eventually bring it back down.
I did my part. I'm driving a GM car. I'm just not willing to touch GM's stock. As long as GM and Chrysler are demanding tens of billions in bailouts from the government, I can't see how this story ends well.
Between the bailout backlash building and the ridiculous anticompetitive stipulations that the government is imposing on companies that do approach it with tin cups, I'd rather invest in companies that have the ability to dig themselves out of today's mess without owing someone later.
A year ago, it seemed as if ValueClick would be fighting off rival buyout offers from the search engine heavies looking for a bigger piece of the display advertising market. The porch is free of gentlemen callers these days. It doesn't help that analysts see a 13% decline in revenue at ValueClick this year.
Busting the myths
Low-priced stocks aren't necessarily cheap. GE commands a market cap of nearly $100 billion, despite its cascading ways.
I love fishing for stock ideas in these $5-$10 waters, but I only consider buying when I see near-term catalysts for growth. It's the approach I take as part of the Motley Fool Rule Breakers newsletter team (check it out for free with a 30-day trial subscription).
However, I don't see the positive catalysts at these five companies. Wall Street expects all of them to post lower revenue this year, and the bottom-line carnage gets even uglier in a few cases.