5 Deathbed Stocks?

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 of these signs suggest that their condition is worsening -- a financial death rattle, if you will.

Stocks in sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. We're seeking companies that have virtually given up the ghost. For help, we'll turn to the clever coroners at our 135,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,300 stocks.

We've unearthed a handful of stocks that look like they might be headed for their final rest, based on their one-star CAPS ratings, but we'll head over to the stock-rating service to measure their opinions on a company's prospects. Then we'll palpate their pulse with some quick tests for liquidity -- and who knows, maybe we'll still find some signs of life!

Among those tests, the current ratio and quick ratio (also called the "acid test" ratio) give us an idea of a company's ability to pay its bills, and the Altman Z-Score suggests companies in danger of bankruptcy. Companies scoring 3.00 and above are considered safe, while those scoring between 2.70 and 2.99 are "yellow flags." Companies placing 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 crypt keeper is waiting.

Here's today's list.

Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's. N/A = not applicable.

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, such as software makers and financials, don't neatly fit into the Altman Z-Score scale. Yet like the mythological figure of Charon conducting souls across the River Styx to the netherworld, we'll use the CAPS community as our guide to determine whether these stocks are destined to seriously underperform the market. After all, Lear -- which appeared here a year ago -- just filed for bankruptcy protection last week.

Whistling past the graveyard
A good company frequently has its valuation hurt by getting lumped in with all of the other bad apples in its industry. Yet AirTran and other discount airlines have used their position as low-cost carriers to offset the steep decline in air travel that's wrecking the likes of Delta Air Lines (NYSE:DAL) and American Airlines parent AMR (NYSE:AMR). In fact, AirTran made a profit last quarter, its first since 2007, and Wall Street expects several of the discounters to show a profit when they report next week.

According to the industry's Air Transport Association trade group, May passenger revenue fell by 26% from a year ago, with about 10% fewer passengers paying about 18% less per ticket. With AirTran reporting its earnings next week, investors might just get another pleasant surprise. That kind of expanding opportunity makes investors such as CAPS member jpe141 believe that AirTran will take flight: "This airline is expanding routes and rated top of the savings brands."

Compared with the stocks of 31 other companies in the CAPS Airlines sector that have basically broken even this past month, AirTran has risen by 7% and in fact has more than tripled in value over the past year.

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.