Deathbed Stocks Revisited

Editor's note: Contrary to reporting in a previous version of this article, SIGA Technologies is developing an antiviral drug to fight smallpox, not a vaccine for the disease. The Fool regrets the error.

Over the past year, we've been chronicling companies that appear to be on their deathbeds. As we note, not every company will give up the ghost, but since our original column, quite a few have either disappeared entirely or seen huge drops in their share price. Fannie Mae, Merrill Lynch, Lehman Brothers, Bear Stearns, Washington Mutual, and XM Satellite Radio have all shuffled toward the boneyard, just to name a few.

We look for stocks that have received a ghoulish one-star rating from savvy investors in our Motley Fool CAPS community, and then pair that information with various financial ratios that may signal that the end is near.

Now that a third of those original companies have gone under or otherwise disappeared, let's take a look at some of the stocks we deemed to be on their deathbeds.

*Filed bankruptcy on Nov. 10, 2008.

Whistling past the graveyard
"Please, please, oh please let video game rentals work!" You can almost hear Blockbuster executives repeating that mantra in the corner suite. But since the movie-rental business isn't going so hot, one doubts they'll find any greater success with video games, either.

Blockbuster's latest quarterly report served up the excuse that an abundance of good movies on the big screen pulled weekend traffic away from their stores. Yet perhaps that portends some kind of uptick in the future. If movie studios are once again putting out films viewers want to see, maybe they'll turn to Blockbuster to rent them when they hit DVD. Or, since they're apparently not going to Blockbuster's stores, maybe they'll stop at the company's new RedBox-like kiosks. Something's gotta work, right? Given the slender thread by which Blockbuster hangs, it seems hard to believe there will be time for a second act.

One company that has come back from the grave is SIGA Technologies, a biotech engaged in developing drugs to fight biological-warfare pathogens like smallpox. Virtually all of its revenue is derived from contracts and grants to develop a smallpox antiviral drug, but -- just to highlight the risks still associated with this investment -- it could only recognize revenue amounting to all of $8 million in 2008. SIGA is still in the process of getting approval to manufacture its drug in commercial quantities, meaning investors will still have a long wait before seeing any real payoff.

CAPS members have become more hopeful about its prospects, however, as joker70 demonstrated back in March: "The company has made steady progress toward approval for its smallpox drug for which there is no competition. I expect it to triple within 2 years."

Similarly, American Superconductor has overcome negative press reports and skepticism about its business model to see its stock nearly triple since the end of December. Wind power hasn't been generating the kind of attention these days that it did when oil was at $100 a barrel. But energy prices are rising again, and the world's largest wind turbine manufacturer, Vestas, recently reiterated full-year sales guidance. Perhaps American Superconductor will yet make a go of it in selling wind industry components and building on its first-ever profit.

CAPS member familyfund2 likes the company's long-term prospects: "I love this company, but it is so niche and not really ready, and though I think they will weather the storm, I think they have peaked for a while. Looking for entry point."

Rattling the cage
We'll be back next week to identify more stocks that are leaving investors feeling chilled to the bone. In the meantime, 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 your favorite stock's CAPS page. Sign up today, absolutely free, and let us know whether you think a stock is headed for its demise.