We've all heard of the "death rattle," the last gasp from a lost soul's lungs. Sometimes, we seem to hear it from the companies in which we invest. Revenues dry up. Margins contract. Profits evaporate. All these signs suggest that their condition is worsening -- a financial death rattle, if you will.
Stocks in sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. Here, however, we're seeking companies that have all but given up the ghost.
For help, we'll turn to the clever coroners at our 145,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,300 stocks. We've unearthed a handful of stocks that look like they might be headed six feet under, based on their one-star ratings.
We'll head over to CAPS to gauge each company's prospects. Then we'll palpate their pulses with some quick tests for liquidity -- who knows, maybe we'll still find some 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. Companies scoring 3.00 and above are considered safe; those between 2.70 and 2.99 are "yellow flags"; those 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.
Here's today's list. Are these one-star companies only mostly dead, or have they already given up the ghost?
|
Stock |
CAPS Rating |
Current Ratio |
Acid-Test Ratio |
Altman Z-Score |
Recent Price |
|---|---|---|---|---|---|
|
Delta Air Lines |
* |
0.9 |
0.7 |
0.39 |
$13.17 |
|
DR Horton |
* |
7.9 |
3.1 |
2.13 |
$12.25 |
|
Equinix |
* |
2.5 |
2.4 |
1.70 |
$104.12 |
|
New York Times |
* |
0.8 |
0.5 |
1.68 |
$13.95 |
|
Telmex Internacional |
* |
1.0 |
0.9 |
2.53 |
$18.69 |
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
We obviously don't know whether these companies are headed for the boneyard or not, 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.
Like the mythological figure of Charon conducting souls across the River Styx to the netherworld, we'll use the CAPS community as our guide to determine whether these stocks are destined to seriously underperform the market.
Whistling past the graveyard
Airlines once scrambled to cut ticket costs, often triggering bruising price wars. Now they're charging hard in the other direction, raising fees on passengers for what used to be freebies. United Airlines
The airlines have already benefited from lower fuel costs in 2009, after having nearly crashed and burned the year before because of soaring oil prices. Given their rosier outlook, U.S. carriers need to consider the risks of alienating their customers too much. The potential that terrorists might exploit their planes rose to the fore once again this past Christmas, and delays at security checkpoints will increase frequent flier frustration, even if it's not the industry's fault. Adding nickel-and-dime fees to all this stress could trigger a significant customer backlash.
CAPS member boghead believes that the industry's inability to turn rising revenue into profits highlights why airlines are not a good investment:
When you look at their finances you will notice that they have solid revenue growth over the past few years. Too bad they haven't been able to turn that into a profit. They may actually return to profitability in 2011. I am betting the stock will go back down before then.
Even if airlines should have been charging checked-bag fees all along -- we've gotten a free pass for a long time -- the perception that they're gouging passengers now, during a recession, is hard to shake. And bankruptcy, currently rumored for Japan Airlines, always seems to be threatening the U.S. carriers as well. Fly on over to the Delta Air Lines CAPS page and let us know what you think about its chances of staying aloft.
Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they be resurrected to stalk the markets once again? 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.
