Wednesday's Worst Stocks in the World

Bad days. We all have them; some of us deserve them. Here are five stocks whose naughty ways drew investors' scorn on Wednesday:

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Naughty?
Well, OK, we can't exactly call these stocks naughty. There are days when five-star winners and newsletter recommendations appear here. Unfortunately, today is one of those days.

But, if you're an investor, you'll have plenty of bad days. The trick is to avoid dating -- or, worse, marrying -- your losers. That's why I listen when our 100,000-person-strong Motley Fool CAPS community of stock pickers speaks with a poor rating or a negative pitch. You should, too.

Thus, here is today's list of the worst stocks in the world.

Worse
We begin with -- and I hate saying this -- Headwaters. The numbers are too ugly to ignore. Revenue plummeted 37% and profits disappeared in the second quarter.

It's not a simple problem. Headwaters not only lost the benefit of federal tax credits that had propped up net income. Its core construction business, which accounts for more than 50% of revenue, also crumbled under the weight of the housing bust. Operating margin for that division declined from 2% in last year's Q2 to negative 8.7%.

I still believe there's an investing thesis for Headwaters. Certainly its clean coal business should profit from rising demand for the dusty black stuff over the long term.

But I'd be a coward if I didn't point out that the worst-case scenario laid out here in 2006 has suddenly, and brutally, come to be. In response, management has cut its full-year earnings guidance to $0.60 to $0.75 per share from $0.95 to $1.35 a share.

Risk? Thy name is Headwaters.

Worser
Next up is Unisys, a former guest in this column, which on Wednesday reported vastly improved operating profits that, to me, are meaningless.

Here's why. Unisys reported a 5% revenue tailwind from currency exchange rates. Dividing the information technology services company's $1.3 billion in reported revenue by that same ratio results in ... (key punching sounds) ... $1.24 billion.

It is therefore possible that roughly $62 million in revenue is directly attributable to exchange rates.

Wait, it gets worse. U.S. revenue declined by 11%, thanks to delays in federal orders. Foreign revenue was down 6% after discounting the effects of currency exchange rates. And while operating profit improved by $57.6 million, $21.8 million of that came from cuts in general and (gulp) research and development expenses.

Put differently: Unisys' gains may be, at best, artificial and sacrificed at the altar of innovation. Talk about a dangerous game for a tech company.

Worst
But our winner is SAVVIS, which once again cut guidance. Executives now expect the IT infrastructure services company to book $840 million to $870 million in revenue for 2008, down from earlier projections of $910 million to $925 million.

Looking at SAVVIS' first-quarter results, I can understand why. Revenue fell 1% to $203.3 million as expenses more than tripled, resulting in a $420,000 operating deficit.

But that's not an entirely fair comparison. Last year, SAVVIS benefited from a $125 million sale of its CDN assets -- assets that, at one time, put it in a position to compete with Akamai (Nasdaq: AKAM) and Limelight (Nasdaq: LLNW). Exclude that one-time gain and operating expenses rose just 6.4%.

Still, that doesn't erase the deficit. It's real and will persist so long as revenue growth fails to keep pace with operating expenses.

SAVVIS and its sad search for profitable sales ... Wednesday's worst stock in the CAPS world.

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I'll be back tomorrow with more stock horror stories.