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5 Deathbed Stocks?

By Rich Duprey - Updated Apr 5, 2017 at 6:58PM

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Are these companies dead -- or just dead-ish?

Sometimes we seem to hear a death rattle coming from the companies in which we invest. Revenues dry up. Margins contract. Profits evaporate. These signs suggest that their condition is worsening.

But don't assume that all such companies are goners. Some will barely cling to life; others will make a full recovery. Today we're seeking companies that have all but given up the ghost.

For help, we'll turn to the clever coroners at our 120,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,400 stocks. Data show that newly minted five-star stocks offered the best opportunities for investors, while the lowest-rated companies fared the worst. We've unearthed a handful of stocks that look like they might be headed 6 feet under based on their having garnered no more than the lowest one-star rating from the CAPS community.

Then we'll palpate their pulse with some quick tests for liquidity -- who knows, maybe we'll find signs of life! The current ratio and quick ratio (also called the "acid test" ratio) give us an idea of a company's ability to pay its bills, and the Altman Z-Score suggests companies in danger of bankruptcy.

Here's today's list. The question is, are these companies only mostly dead, or have they already given up the ghost?

Stock

Current Ratio

Acid-Test Ratio

Altman Z-Score^

Recent Price

Pulte Homes (NYSE:PHM)

4.1

0.7

2.45

$11.70

Dolan Media (NYSE:DM)

0.9

0.8

0.66

$6.59

Eastman Kodak (NYSE:EK)

1.5

1.1

2.14

$6.33

General Growth Properties (NYSE:GGP)

0.5

0.4

NA

$1.66

Saks (NYSE:SKS)

1.8

0.0

1.89

$4.14

Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's. NA = not available.
^ Companies scoring 3.00 and above are considered safe, between 2.70 and 2.99 are "yellow flags," between 1.80 and 2.70 have a good chance of going bankrupt within two years, and those with scores below 1.80 mean the cryptkeeper is waiting.

We obviously don't know if these companies are nodding into a dirt nap, so don't short them based on their appearance here. Moreover, some companies, like software makers and financials, don't neatly fit into the Altman Z-Score scale. Yet our primary screen is for those stocks that CAPS investors have given one-star status, meaning they are possibly destined to seriously underperform the market.

A general lack of growth
With more than $3 billion in debt due next year, mall operator General Growth Properties has been scrambling to refinance nearly a billion dollars that was due last Friday. When it missed a deadline yesterday, its credit rating was downgraded. Having more than 200 malls under management makes General Growth the second-largest operator behind Simon Property Group (NYSE:SPG). Yet CAPS member ponyfan81 sees too many negatives stacked against it: "Overleveraged, lack of cash, extreme refinance risk on most of its assets. Bye bye [General Growth Properties]."

Picture this
It was only a month ago that Eastman Kodak was forecasting a 5% drop in revenues for the year. But citing a "dramatic slowdown in consumer spending" the camera maker pulled the guidance and announced it would forgo executive raises next year while also eliminating matching contributions to employee 401(k) plans.

The market researchers at IDC also withdrew their forecast of worldwide camera sales growth, believing that revenues will fall slightly. However, they believe Kodak, Nikon, and Samsung remain well positioned in the low-end market. Top-rated CAPS member kidderpeabodyny also doesn't foresee any implosion, but does catch the whiff of a takeover:

good mgt, return on equity...lost much to Hewlett-Packard (NYSE:HPQ) fuji etc but finances still in good shape and return to profit possible next year.Should drop or reduce dividend in the meantime, would be a positive.Still a highly recognizable brand name with patents.POSSIBLE takeover?

Rattling the cage
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.

Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial interest in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is full of life.

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Stocks Mentioned

Brookfield Property REIT Inc. Stock Quote
Brookfield Property REIT Inc.
GGP
HP Inc. Stock Quote
HP Inc.
HPQ
$34.65 (1.26%) $0.43
PulteGroup, Inc. Stock Quote
PulteGroup, Inc.
PHM
$44.95 (1.54%) $0.68
Simon Property Group, Inc. Stock Quote
Simon Property Group, Inc.
SPG
$115.85 (1.56%) $1.78
Eastman Kodak Stock Quote
Eastman Kodak
KODK
$6.82 (6.90%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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