Wednesday'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 Wednesday:

Naughty?
Well, OK, we can't exactly call these stocks naughty. There are days when five-star winners and newsletter recommendations appear here. Today is one of those days.

But, if you're an investor, you'll have plenty of bad days. The trick is to avoid dating -- or, worse, marrying -- your losers. That's why I listen when our 84,000-person-strong Motley Fool CAPS community of stock pickers speaks with a negative rating or pitch. You should listen, too.

Thus, here is today's list of the worst stocks in the world.

Worse
We begin with Nortel, whose lousy earnings report led management to announce that it would lay off more than 2,000 workers. Another 1,000 or so are to be "relocated," whatever that means.

On a GAAP basis, which included $1.04 per share in non-cash tax-related charges, Nortel's fourth-quarter net loss plummeted from $80 million in 2006 to more than $800 million.

That probably sounds worse than it is, though. What's irrefutable is Nortel's weak sales. Fourth-quarter revenue fell nearly 4% to $3.2 billion. Layoffs suggest that management doesn't see that trend reversing soon.

Worser
Next up is Dycom, whose second-quarter results fell below Street estimates. What a shocker. Dozens of companies have suffered the same, including high-rated winners such as Autodesk and top growth stock VASCO Data Security (Nasdaq: VDSI).

So why does Dycom make our list? Because this is no ordinary miss. Dycom's $0.04 per share in non-GAAP profit is less than half of what the Street expected ($0.09 a share) and less than one-third of what the company earned last year on lower revenue ($0.14 a share).

And worst of all: That $0.04 excludes the cost of a pending legal settlement, which, when included, threw Dycom for a net loss of $3.2 million, or $0.08 per share. Talk about ugly.

Worst
But our winner is Solarfun Power Holdings, which, along with peers Yingli Green Energy (NYSE: YGE), Trina Solar, and JA Solar, got a downgrade from analysts at Bank of America. The reason? Too much pressure on gross margin.

That's certainly true of Solarfun. Gross margin, at 17.5%, has retreated to near 2005 levels (15.8%) over the past 12 months, pretty much giving up the huge gains it made in 2006. That year, gross margin reached 29%.

Investors may not see that plateau again for a while. According to the "risks" section of its prospectus for a $150 million convertible debt offering, Solarfun has exactly zero pricing leverage in obtaining the polysilicon inventory it needs. Quoting from page 13: "We have entered into the silicon ingot production business through our acquisition of a 52% equity interest in Yangguang Solar, an ingot plant that commenced operations in October 2007. ... Yangguang Solar is currently receiving polysilicon from Zhongneng [its primary supplier] based on purchase orders negotiated on a month-to-month basis." [Emphasis added.]

Translation: We'll pay more every time polysilicon prices increase, as they have almost continuously since 2004. (Prices are up eightfold between 2004 and 2006.)

Solarfun Power and its rapidly eroding margins ... Wednesday's Worst Stock in the CAPS world.

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I'll be back tomorrow with more stock horror stories.