5 Deathbed Stocks?

• Email
• Share
• Print

We've all heard of the "death rattle," the last gasp from a lost soul's lungs. Sometimes, we seem to hear it from the companies in which we invest. Revenues dry up. Margins contract. Profits evaporate. All these signs suggest that their conditions are worsening -- a financial death rattle, if you will.

Stocks in a coma
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. Sure, it happens, but here we're seeking companies that have all but given up the ghost.

For help, we'll turn to the clever coroners at our 125,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,400 stocks. Data shows that newly minted five-star stocks offer the best opportunities for investors, while the lowest-rated companies fared the worst. We've unearthed a handful of stocks that look like they might be headed six feet under, based on their rock-bottom one-star ratings.

Then we'll palpate their pulse with some quick tests for liquidity -- who knows, maybe we'll still find some signs of life! We'll use the current ratio and quick ratio (also called the "acid test" ratio), which give us an idea of a company's ability to pay its bills, and the Altman Z-Score, which suggests companies in danger of bankruptcy. Companies scoring 3.00 and above are considered safe, between 2.70 and 2.99 are "yellow flags," between 1.80 and 2.70 have a good chance of going bankrupt within two years, and those with scores below 1.80 mean the cryptkeeper is waiting.

Here's today's list. The question is, are these companies only mostly dead, or have they already given up the ghost?

Stock	CAPS Rating	Current Ratio	Acid-Test Ratio	Altman Z-Score	Recent Price
Bottomline Technologies (Nasdaq: EPAY)	*	1.4	1.3	1.55	$6.36
Semiconductor Manufacturing (NYSE: SMI)	*	1.0	0.7	0.17	$1.91
Solera (NYSE: SLH)	*	2.0	1.8	1.78	$23.20
Tootsie Roll Industries (NYSE: TR)	*	3.0	1.9	5.79	$24.43
UDR (NYSE: UDR)	*	0.5	0.0	NA	$11.80

Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.

We obviously don't know whether these companies are headed six feet under, so don't short them based on their appearance here. Moreover, some companies like software makers and financials don't neatly fit into the Altman Z-Score scale. Yet our primary screen is for those stocks that CAPS investors have given one-star status to, meaning they are possibly destined to seriously underperform the market. The usefulness for looking at companies through this type of lens was demonstrated this morning, as one of our very first deathbed candidates, Nortel Networks, finally succumbed and filed for bankruptcy. Will any of today's companies follow suit? Only time will tell.

Gouging the chips
As the largest chipmaker in China, Semiconductor Manufacturing is looking to expand its presence and is said to be mulling a decision to sell a strategic portion of itself to Intel (Nasdaq: INTC). Although Intel began building a factory in China last year, the chip industry is hurting. According to the Semiconductor Industry Association, worldwide chip sales declined 9.8% in November from the year before, which is 7% lower than in October.

CAPS member aChimera sees the Chinese chipmaker tacking alongside the market for the time being, moving in tandem with its segment. But as it grows its manufacturing base, it will rise when the industry turns:

A semiconductor company in Asia that has been growing its infrastructure. Just successfully achieved the 45 nanometer fabrication and so is poised for growth. When the beaten down chip market picks back up, it will climb. Otherwise, seems to be tracking the market for now.

Foreclosures in California and Florida are off and running. According to the market analysts at RealtyTrac, foreclosures jumped 82% in Florida to more than 450,000 through November, second only to California's 748,000. The housing crisis is hitting homebuilders like Beazer Homes (NYSE: BZH), which some analysts think may not survive the year. It had just 930 closings in the entire fourth quarter and only 550 new orders.

REITS like UDR, a manager of apartments and which has a large presence in South Florida and California, seem to be faring little better. CAPS member ponyfan81 thinks UDR is just too highly leveraged and has no lifeline to cheap financing anymore: "Highly leveraged apt REIT....easy financing no longer exists, even through [Fannie Mae]."

Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they be resurrected to stalk the markets once again? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.

Beginning Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.