Thursday's Worst Stocks in the World

Bad days. We all have them; some of us deserve them. Here are five stocks whose naughty ways drew investors' scorn on Thursday:

Company

Closing Price

CAPS Rating (5 max)

% Change

52-Week Range

Blyth (NYSE: BTH  )

$16.73

**

(13.50%)

$15.45-$27.89

Del Monte (NYSE: DLM  )

$7.73

***

(11.89%)

$7.51-$12.94

Jackson Hewitt (NYSE: JTX  )

$13.41

***

(5.83%)

$10.90-$34.48

Aircastle (NYSE: AYR  )

$11.03

****

(5.16%)

$10.85-$41.31

Meritage Homes (NYSE: MTH  )

$17.90

*

(4.07%)

$7.04-$32.55

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Naughty?
Well, OK, we can't exactly call these stocks naughty. There are days when five-star winners and newsletter recommendations appear here. Today, sadly, is one of those days.

But, if you're an investor, you'll have plenty of bad days. The trick is to avoid dating -- or, worse, marrying -- your losers. That's why I listen when our Motley Fool CAPS community of more than 105,000 stock pickers speaks with a poor rating or a negative pitch. You should, too.

Thus, here is today's list of the worst stocks in the world.

Worse
We begin with Del Monte, which said it would face declining sales and rising costs in the new fiscal year. Foolish colleague Colleen Paulson provided perspective:

Del Monte doesn't paint a delicious picture going forward, with projected net sales growth of 5% to 7% for FY 2009 (versus 9.4% for FY 2008). Del Monte also forecasts that increasing costs will not be offset by pricing and cost-control initiatives. No product seems safe as Del Monte attempts to strengthen its portfolio. Last month, the company announced plans to sell StarKist tuna (and its beloved spokesperson Charlie), partly because of "highly sensitive price elasticity."

I'd love to believe the trouble ends there. I don't because, since 2003, gross margin has dropped from better than 29% to barely 25%. Expect further declines as costs rise and demand weakens.

Worser
Next up -- and I really hate writing this -- is Jackson Hewitt, a Motley Fool Inside Value pick that once again reported awful earnings.

Revenue fell 4.6% for the year, as the company prepared 5.3% fewer tax returns. Earnings were down nearly 50%. And free cash flow fell ... well, actually, we don't know. Jackson Hewitt didn't publish a cash flow statement.

More troublingly, though, there's little proof of a turnaround. Not a good sign, especially when peer H&R Block (NYSE: HRB  ) could be seeing better days. I think Foolish colleague Ryan Fuhrmann put it best in his take on the Q4 results:

Earnings would have been quite a bit higher, if not for costs and litigation charges ... but it's difficult to tell what the recovery trends will be, since management didn't offer any guidance for the coming year, as it usually does.

Translation: There's no telling how bad it could get.

Worst
But our winner is Blyth, which was forced to write off $5.2 million, or $0.14 a share, of assets invested in bankrupt e-tailer RedEnvelope, a former Motley Fool Hidden Gems recommendation that Tom Gardner sold in 2005. Here's why:

For the past two years, RedEnvelope's leadership group has delivered unspectacular financial results accompanied by minor accounting stumbles. The company has also yet to produce a full year of positive cash flow... It feels far less nimble than much larger online merchants such as Amazon.com (Nasdaq: AMZN  ) . If RedEnvelope's balance sheet were strong, I'd wait to see ... Instead, the company has ground cash positions down from $27 million to $13 million since the beginning of the year.

If only Blyth's executives had seen this advice. Last August, they were buying at $4.41 a share, and they continued buying as RedEnvelope climbed above $5. But then, on Sept. 14, RedEnvelope announced:

  • A 9% decline in net revenue.
  • A decrease in gross margins of three percentage points.
  • A corporate makeover designed to overcome a "weakened customer file," whatever that means.

How did Blyth respond to the news? By buying more. And more. And more. Of the 1.345 million shares Blyth owned as of May, 1.08 million were purchased in November.

To be fair, Blyth may have been betting on grabbing the business for cheap in a bankruptcy auction. SEC filings show that executives intended to submit a bid for RedEnvelope as of May 19. Ten days later, the bidding was over; former Rule Breakers recommendation Provide Commerce won.

I understand that we all make investing mistakes. I've made plenty. Blyth's executives earn the bogey for accelerating their buying in the face of evidence that suggested anything but a turnaround. Shareholder capital shouldn't be so easily disposable, folks.

Blyth and its how-bad-can-that-business-really-be management team ... Thursday's worst stock in the CAPS world.

Do you agree? Disagree? Let us know what you think by signing up for CAPS today. It's 100% free to participate.

I'll be back Tuesday with more stock horror stories.

Jackson Hewitt is a recommendation of both the Inside Value and the Motley Fool Hidden Gems Pay Dirt services. Amazon and Meritage Homes are Stock Advisor selections. Try any of these market-beating services risk-free for 30 days.

Fool contributor Tim Beyers, ranked 18,672 out of more than 105,000 participants in CAPS, also writes for Rule Breakers. He hopes that Keith Olbermann doesn't mind the blatant theft of his "Worst Person in the World" segment from Countdown. Remember, Keith, imitation is the sincerest form of flattery.

Tim didn't own shares of any of the stocks mentioned in this article at the time of publication. The Motley Fool's disclosure policy thinks cooked spinach is the worst veggie in the world.


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