For more than a 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 that original column, quite a few have either disappeared entirely or seen huge drops in their share prices: Fannie Mae, Merrill Lynch, Lehman Brothers, Bear Stearns, Washington Mutual, and XM Satellite Radio, to name just a few.

In this column, we check for stocks that our savvy investors at Motley Fool CAPS have graced with a lowly one-star rating, and we pair that information with various financial ratios that flash like a neon sign that the end is near.

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


Price at First Appearance

Price Today

% Change





Jazz Pharmaceuticals




New York Times (NYSE:NYT)




Ruby Tuesday (NYSE:RT)








D.R. Horton (NYSE:DHI)








General Motors**




Hoku Scientific



(59.13%) (NYSE:CRM)




*Acquired by Middleby on 1/5/09. **Declared bankruptcy on 6/1/09.

Unlike previous visits back in time, when nearly all of the companies we covered ended up reporting lower returns, this group from last October has nearly half of the companies actually recording positive results -- some spectacularly so. Jazz Pharmaceuticals has doubled in value, while restaurant chain Ruby Tuesday has nearly tripled in price. Let's try to figure out why some of these companies were able to recover while others, with a seemingly similar dire outlook, could not.

Whistling past the graveyard
Even as the CAPS community gave a one-star rating, it recognized that the on-demand software provider was an up-and-coming industry leader. Despite a stock price that's been crushed from $70 a share to below $30, CAPS member treasurizer notes that the company still carries a very lofty valuation: is a great company. It is very well managed and well-respected in its field. The opportunity for growth is impressive. A newcomer, it is already making the likes of Larry Ellison a bit nervous.

That said, the current valuation is ridiculous. The market trades at an average P/E of about 16 and yields just under 10% annual returns over time. CRM's current multiple over 117 suggests the market expects annualized returns in the range of 70%!

Yet as Rich Smith noted earlier this year, remains a cash-generating machine. And going by the metrics that should matter most to investors, it was deemed a "dirt cheap" stock.

Meanwhile, it seems more obvious that other stocks were doomed to fail. General Motors was careening down a steep slope, while NPS Pharmaceuticals was having difficulties of its own, with partner GlaxoSmithKline (NYSE:GSK) ending a clinical study early because of a lack of efficacy. Although NPS Pharmaceuticals didn't have to return the $26.1 million it had received from GlaxoSmithKline for license fees, research support, and milestone payments, its shares still tumbled by 9% following the news. CAPS All-Star member zzlangerhans noted at the time that its clinical trials hadn't been going particularly well.

It's a different story today, though, as the CAPS community has raised NPS's rating to three stars. CAPS member topsecret09 finds the company's pipeline more promising these days.

They have one late stage Phase 3 drug (GATTEX) that looks very promising. The drug has achieved ORPHAN DRUG STATUS from the Food and Drug Administration, and I believe there is some good news just around the corner. The company has strategic relationships with GLAXOSMITHKLINE, Amgen (NASDAQ:AMGN), NYCOMED, and KIRIN. This stock Is not for the faint of heart, but a quick triple or better may be In the cards.

It could be that the pessimism following the collapse of the financial markets clouded investor judgment regarding the long-term worthiness of many of these companies. That's one of the reasons we recommend doing your own due diligence on any company.

Rattling the cage
We'll be back next week to identify more stocks that are leaving investors feeling ill. In the meantime, you can 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. is a Motley Fool Rule Breakers selection. The Fool owns shares of Middleby, which is also a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.