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. Revenue dries up. Margins contract. Profits evaporate. All of these signs suggest that a stock's condition is worsening -- they're 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 end up making a full recovery. Kmart climbed from the coffin of bankruptcy to become part of Sears Holdings, while United Airlines parent UAL re-crossed the River Styx to fly the friendly skies once more. But in this column, we're seeking companies that have all but given up the ghost.
For help, we'll turn to the clever coroners at our 82,000-strong Motley Fool CAPS community, where players give the thumbs-up or thumbs-down to more than 5,300 stocks. A year's worth of data suggests that CAPS' highest-rated stocks have performed best, while its lowest-rated companies fared worst. We've unearthed a handful of stocks headed six feet under, having recently dropped from two stars to the lowest one-star rating. Are they only mostly dead, or have they truly given up the ghost?
|
Stock |
1-Year Return |
Recent Stock Price |
|---|---|---|
|
Ladenburg Thalmann Financial Services (AMEX: LTS) |
3.13% |
$1.98 |
|
Discovery Labs (Nasdaq: DSCO) |
(24.44%) |
$2.01 |
|
AirTran Holdings (NYSE: AAI) |
(37.98%) |
$7.30 |
|
IKON Office Solutions (NYSE: IKN) |
(43.28%) |
$9.37 |
|
Acxiom (Nasdaq: ACXM) |
(63.15%) |
$9.09 |
Looking at the names on the list, you might be tempted to think that some might need the ICU unit rather than a cemetery plot. Brokerage house Ladenburg Thalmann, for example, one of the oldest banks on Wall Street, is actually showing positive returns during a period when many of its clients are not doing as well. However, stocks that CAPS investors have marked down to one star are possibly destined to seriously underperform the market in the future, and Ladenburg Thalmann's shares are trading at prices close to half their 52-week highs.
Not an icon of office supplies
When document manager IKON Office Solutions reports earnings tomorrow, you can expect them to come in as much as 38% lower than the guidance management had previously given. That's because the company announced last week that productivity was off in the quarter, but management sees "no fundamental reason why we can't grow revenue in fiscal 2008." While they can't see any impediment to growth, in the event things don't pan out as expected, they'll take additional, unnamed actions.
Perhaps they'll consider the remedies being bandied about by one of their largest shareholders, Steel Partners, which has a 13% stake in the office equipment provider. Steel Partners has been seeking a possible sale of the company, as well as attempting to win a seat on the board of directors. So far, apparently, IKON's management has rebuffed those endeavors, although Steel Partners has backed IKON's $500 million share repurchase plan.
As for a dividend, IKON's yield lands midway between Pitney Bowes (NYSE: PBI) and rival Xerox (NYSE: XRX), which has found its financial condition improved enough to resume its dividend after cancelling it six years ago.
It's been awhile since either a bull or a bear has weighed in with a pitch about IKON's future. But when top-rated All-Star CubsBearsBulls43, who ranks higher than 99.13% of all CAPS players, opined 11 months ago on the office-solutions provider, he didn't see it surviving unless it sought out new avenues for growth:
Unless they branch out to other products or services it's hard to imagine they can outperform the market. This is not a growth industry. They're just hoping they don't become another Danka.
That seems to echo the sentiments of CAPS player harbingerofdoom, who felt a few months ago that the competition was moving too fast for IKON to make it alone: "Xerox high end product line, expansion of Canon, Ricoh, Konica Minolta and Toshiba direct operations that will cut into Ikon's core major account business, printer convergence with copiers and HP's aggressive push into selling printer based MFPs to replace copiers impairing margins in the office segment ..."
Steel Partners has been saying IKON is undervalued and agitating for change since it first acquired its position back in 2005. Perhaps management will soon take up the challenge and print out a new plan of action.
Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they recover to shine again? On Motley Fool CAPS, you have the power to tell your fellow investors just how you feel. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.
