I've got it on good authority that there are people who actually search through the Dumpsters behind grocery stores to find food that might still be edible.
Gross, right?
So why are you doing the same thing in your portfolio?
What's that rotten stink?
The recent rising market tide has floated all boats. Even AIG (NYSE:AIG), 80% owned by the government and absolutely emblematic of all that has gone wrong in recent years, is up a couple of hundred percent!
And it's not the only one. The stocks of many beleaguered, struggling, debt-laden, second-string companies have soared for no good reason, beyond the possibility that some investors think there might be money to be made from sifting through the market's trash bin.
Just take a look at this garbage:
|
Company |
Price Appreciation (6 months) |
Earnings/Loss Per Share (LTM) |
Revenue Increase/Decrease (LTM) |
Total Debt-to-Capital |
|---|---|---|---|---|
|
Avis (NYSE:CAR) |
2,316% |
($11.60) |
(10.8%) |
98.3% |
|
Krispy Kreme Doughnuts (NYSE:KKD) |
192% |
($0.09) |
(11.4%) |
47.2% |
|
Sirius XM (NASDAQ:SIRI) |
357% |
($1.72) |
119% |
95.8% |
|
Ruby Tuesday (NYSE:RT) |
579% |
($0.35) |
(8.2%) |
54.2% |
*All data from Capital IQ and MSN Money.
Those are heady gains here for such a sad-sack bunch of stocks. None has turned a profit in the past 12 months, only one has a revenue gain, and all four of these companies have formidable amounts of debt, which should give investors pause.
Add a harsh consumer spending environment to our economy's plentiful difficulties, and my advice to investors is to leave speculative garbage alone -- lest it poison your portfolio.
Don't get stuck holding the garbage bag
In other words, investors are choosing to spin the metaphorical wheel on beleaguered garbage stocks that may not even make it out of the current economic environment alive.
Sure, a quick double would be nice, but it's all too likely that the investors hoping such stocks will rise won't know enough to get out before their shares start to inevitably fall again.
Instead of rummaging through the garbage, find stocks connected to high-quality, unspoiled companies that aren't likely to leave investors holding a bag of fetid losses.
At Motley Fool Stock Advisor, we look for strong, well-run companies that have bright futures and strong balance sheets. Our picks include everything from little-known innovators to stalwarts like Amazon.com (NASDAQ:AMZN) and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B). On average, our portfolio is now beating the S&P by 44 percentage points.
If you're having a hard time separating the fresh ideas from the trashy ones, just click here for a free, 30-day trial to Stock Advisor. There's no obligation to subscribe.
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Alyce Lomax does not own shares of any of the companies mentioned. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor picks. Berkshire Hathaway is also an Inside Value choice. The Fool owns shares of Berkshire Hathaway. The Fool has a disclosure policy.
