I don't want to leave you with the idea that all small-cap stocks are future rocket shots. They aren't. I avoid the great majority of them.
Stay away from this one...
Charter Communications [Nasdaq: CHTR] provides cable, broadband, and telephony services to more than 11 million customers.
The company, whose chairman and largest beneficial shareholder is Microsoft co-founder Paul Allen, has been beset by investigations from the FBI, the U.S. Department of Justice, and the SEC for fraudulent accounting and inflated subscriber counts.
I recommended that members stay away from Charter with the stock trading around $4.50 in the fall of 2003. Now, it trades around $1.50. Is it a turnaround from here?
Not by a long shot.
Today, Charter Communications has a bit more than $56 million in cash alongside more than $20 billion in debt. Gasp.
True -- in its second quarter of 2006, the company announced an operating income increase of 46%. BUT the business simply is not generating enough cash to meet its obligations. Through the first six months, Charter paid nearly $1 billion in interest alone.
Even as management desperately tried to restructure the debt, Standard & Poor's further downgraded Charter's bonds to junk status.
None of this means that a turnaround is out of the question. But if you ask me, there's more rough than diamond here.
Terrifying! When a load of payments comes due this year, it'll be do-or-die for stockholders. I fear it may well be "die". Even at $1, Charter's no gem.
The list of low-priced stocks that shouldn't and couldn't and wouldn't go lower -- much less off the radar entirely -- is painfully long.
But remember, hidden gems are not stocks, but companies. Our first concern is always the business and the financials -- whether the stock trades at $4 per share or $40.
In Hidden Gems, I work very hard on your behalf to find truly great, unknown businesses selling at a temporary discount. I'll typically kick out 50 to 100 prospects before settling on the best gems to recommend to you each month. Sign up for a 30-day free trial to see my next two.