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5 Stocks to Avoid in 2009

Morgan Housel
December 10, 2008

Good news: 2008 is almost over! Bad news: 2009 is about to begin. I don't mean to sound pessimistic but … er … OK, yes I do. The next 12 months will be a terrible, terrible time for some companies.

Here are 5 companies I'd suggest steering clear of in 2009:

Citigroup (NYSE: C  )
I think Citi's recent trip to the bailout window for the second time in almost a month is a harbinger of what's to come in 2009. With more than $2 trillion in assets -- almost 90% of them either Level 2 or Level 3 -- supported by a sliver of tangible equity, it's no great stretch to predict that Citi will struggle to stay alive without more government largesse. After another quarter or two of spectacular writedowns, I suspect the Treasury will intervene with a bailout to end all bailouts, leaving common shareholders virtually wiped out (similar to Freddie Mac, Fannie Mae, and AIG), and auctioning off what's left of the company to healthier banks.

Morgan Stanley (NYSE: MS  )
While a tremendous amount of Morgan Stanley's ills are already priced in (with shares down more than 70% this year), I have trouble wrapping my head around its place in the new, smaller Wall Street. Sure, the death of Lehman Brothers and fallout from Bear Stearns represented a hefty shakeout. But when you consider that Goldman Sachs (NYSE: GS  ) has an unquestionably stronger reputation, Merrill Lynch has the financial backing of Bank of America (NYSE: BAC  ) , and JPMorgan Chase has one of the strongest balance sheets in the league, the silence surrounding Morgan Stanley's position on Wall Street is deafening.

Sirius XM Radio (Nasdaq: SIRI  )
With more than $1 billion in debt coming due in 2009, and barely one-third that amount in cash, the market's resigned to bankruptcy as a forgone conclusion for the satellite radio service. However, if management can somehow finagle a debt rollover, investors could be sitting on a viable company trading for a teeny-tiny fraction of what it used to.

I guess that could happen, but with a debt market that's completely shut out anything junk-related, it seems like a fairy tale to me. CEO Mel Karmazin has said that bankruptcy isn't an option, but need I remind you that we heard similarly reassuring bouts of optimism from the CEOs of Bear Stearns and Lehman Brothers before their demises? 

If bankruptcy truly isn't an option, and the debt market refuses to hear Sirius' case, perhaps a massive outside investment that dilutes exi