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:

Naughty?
Well, OK, we can't exactly call these stocks naughty. But none of them get much love from our 73,000-person-strong Motley Fool CAPS community of amateur and professional stock pickers.

To the contrary -- when it comes to these stocks, CAPS investors have gone thumbs-down more often than film critic Roger Ebert. They believe that none of these stocks are worth owning, and that some may be worth shorting.

Which of today's candidates is worst? Read on, dear Fool.

Worse
We begin with human-resources software supplier Kenexa, which forecasted fourth-quarter results that were well short of Street revenue estimates, leading to a 40% drop in the stock price.

CEO Rudy Karsan doesn't think that's fair, and he said so in announcing a stock-repurchase plan last night. Quoting:

Our updated outlook continues to reflect growth that is greater than the talent management industry average, combined with strong profitability and cash flow. Moreover, we expect each of these characteristics to continue into 2008. As a result of this belief, our Board of Directors has authorized a stock repurchase program as we believe this is in the best interest of our long-term shareholders.

Fair enough. And it's not as if there aren't numbers to back up Karsan's thesis. Kenexa trades for just 13 times its estimated 2008 earnings, for a mouthwatering 0.64 PEG ratio.

Yet I still find myself troubled over this buyback. Here's why:

Maybe it's just me, but if Karsan can't earn excellent returns with the capital he already has, why should we expect better results with a stock repurchase? Perhaps it's nearing time to consider a dividend, sir?

Worser
Next up is cargo carrier U.S Shipping Partners, which also reported poor results. It makes our list because of worries about its ongoing operations. Quoting from the press release:

"For the quarter ended September 30, 2007, [distributable cash flow] was $7.9 million, or [0.94] times the amount needed to cover the cash distribution of $8.4 million declared in respect of the period." (Emphasis added.)

And: "Our ITB fleet is currently our largest source of revenue and EBITDA. However ... higher operating expenses of our ITBs due to their age and the new union contracts will negatively impact the operating income and EBITDA provided by our ITBs over the next several years." (Again, emphasis added.)

I hate naming a company like this a "worst stock," because candid comments like these should be encouraged. So, bravo, U.S. Shipping Partners.

But (yep, there it is) ... if U.S. Shipping already has trouble affording its 10.9% dividend and expenses are sure to rise, what's to keep company brass from cutting it altogether? Perhaps they won't, but Foolish investors may wish to tread carefully.

Worst
But our winner is beleaguered homebuilder WCI Communities, which reported miserable third-quarter earnings and reduced its cash-flow guidance. Talk about rotten timing. It was only in August that executives showed investors a stiff upper lip. Quoting a statement from CEO Jerry Starkey from back then, "Despite the continued weakness in the homebuilding marketplace, WCI has received approximately $130 million of positive free cash flow already this year, including $25 million to $30 million in the second quarter."

No hype there, just fact. Or was it? Two weeks later, in its Q2 press release, WCI said it had booked $119.8 million in "cash flow." Trouble is, it wasn't free cash flow -- at least how Starkey had defined it two weeks earlier. It was, instead, cash from operations plus cash from investing activities ... such as asset sales. Using that standard gave a $47.1 million boost, resulting in $119.4 million in (ahem) "free cash flow."

Talk about a head fake.

But it gets worse. In the Q3 release, WCI revised its guidance for its not-so-free cash flow down from Q2's guidance of $530 million to $730 million to between just $210 million and $460 million. That's at least $220 million in cash flow, gone. Just like that.

Yet, in mid-September, as this was happening, several senior executives were cashing out more than $420,000 in stock for between $7.70 and $8.08 a share. Senior Vice President Vivien Hastings, for example, liquidated all but 100 shares of her direct holdings, according to this filing.

Hey, I understand why Hastings would want to bail out. I would want to, too. Stocks in this sector are just that awful right now. Ask anyone who holds shares of Toll Brothers (NYSE:TOL) or Pulte Homes (NYSE:PHM).

But honestly, shouldn't someone at WCI have said something as these folks were selling? Or, better yet, said something about the change in the cash-flow formula upon which the thesis for investing apparently hinged? Something like, "Hey, you know how confident we were about our cash-flow projections in August? I'm not so sure we can be that confident anymore."

WCI Communities and its parachute-wielding management team ... Thursday's worst stock in the CAPS world.

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See you back here on Monday for more stock horror stories.