Deathbed Stocks Revisited

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.

Here, we check for stocks that have received a rock-bottom one-star rating from the savvy investors in our Motley Fool CAPS community. Then we pair that information with various financial ratios that flash like a neon sign when 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 those stocks originally deemed to be on their deathbeds:

*Wavecom acquired by Sierra Wireless (NASDAQ:SWIR) on March 2, 2009.

On previous trips back in time, nearly all of the companies reported mixed or lower returns. But this group, which appeared in late January, had some fairly strong results, mirroring the run the broader market enjoyed. Let's look a little more closely to see whether we can ascertain why some of these companies recovered, while others with a seemingly similar dire outlook could not.

Whistling past the graveyard
Post-secondary education provider Apollo Group got left back in part by the dire findings of a GAO report. The study discovered that the default rate of for-profit education students was more than twice the rate at public colleges after four years, and more than three times the rate at private nonprofits.

The for-profit education industry has a history of drawing fire for its practices, donning a dunce cap a few years ago after a Department of Education investigation cast doubts on for-profit educators' business practices. Congressman Elijah Cummings has led a push to hold hearings on Apollo's University of Phoenix subsidiary, amid allegations that admission representatives misled prospective students regarding financial aid, available courses, and the ability to transfer credits to other schools. 

Investors remain hopeful, and several of CAPS' All-Star standouts find Apollo's new lower price attractive. OptionsWizard, for example, thinks the stubbornly high unemployment rate will still redound to Apollo's benefit, giving it large upside potential:

The growth rate of this company is incredible. With so many people unemployed the only choice is to go to school. I love the big drop with resistance at 55. Gives me a great place to get out if it goes below. Upside to 80 and beyond really.

The graveyard shift
Some of the companies in our initial list actually saw their business prospects improve. Life and accident insurer Conseco posted three consecutive quarters of positive earnings. That was enough to attract the attention of hedge fund manager John Paulson, the man who made the trade of the century. He agreed to pump $78 million into Conseco's operations, picking up some convertible notes while he was at it.

Car rental king Hertz Global also enjoyed skyrocketing business prospects. While it did plummet dramatically after its January 2009 appearance on our list, it has since turned in a stellar performance, rising 600% from its March lows -- none of which stopped the rental agency from being a bit thin-skinned. When Audit Integrity published a study that similarly questioned Hertz's ability to survive, the rental company chose to sue it for defamation.

Other companies achieved results not necessarily predicated on company performance. Great Atlantic & Pacific Tea got a boost when billionaire supermarket investor Ron Burkle's Yucaipa Companies agreed to invest $175 million in the chain. Burkle apparently saw numerous such opportunities last year, since he also took a 7% stake in Whole Foods Markets (NASDAQ:WFMI) back in January 2009.

Rattling the cage
We'll be back next week to identify more stocks that have left 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.