Meet the losers
It's time again for our monthly roundup of the worst stocks in our world -- the bottom 10 companies as rated by our 22,000-plus ranked players in Motley Fool CAPS.

Here are this month's dregs of the dregs, working from the worst up. Given that CAPS has rankings on more than 3,800 stocks, making the bottom 10 is quite a dubious honor.






Pegasus Wireless






Post Properties



Conversion Solutions Holdings



National Dentex



AFV Solutions



Northwest Airlines






Javo Beverage



International Technology Systems

A couple of these companies, Northwest Airlines and Calpine, have been dealing with the old "BK." Not Burger King, but bankruptcy. That hasn't stopped some speculators from making big dimes on these likely long-term losers, but most players who give them the CAPS "red Fonzie" are betting on the obvious: Common shares post-bankruptcy are usually worth bupkis.

Penny stocks extraordinaire
A couple of the other dubious names on this list will not be strangers to anyone who follows my skeptical looks at penny stocks. Pegasus Wireless, a would-be competitor to Cisco (NASDAQ:CSCO) and Apple (NASDAQ:AAPL) and Manchester, trying to work as a low-rent roll-up peer of CarMax (NYSE:KMX) or Auto Nation (NYSE:AN), are both companies I've followed for a while.

SEC-investigated Conversion Solutions Holdings was something that was so obviously funky that I didn't even have the stomach to write about it, lest some poor soul misunderstand or accidentally hit the buy button. These stocks all defied gravity, until they didn't. A lot of document-digging CAPS players were on to these funky valuations long before the falls, which proves to me that one of the best uses for CAPS is as a harsh reality check.

Pegasus, for those who love a continuing, crazy saga, has decided to move its entire operations to the Bahamas, despite recently getting some negative press there. CEO Jasper Knabb continues to claim he's investing $20 million in the operation (link opens a PDF), despite the fact that the last balance sheet for Pegasus shows only $3.5 million in cash. Knabb, as before, publicly blames a naked-shorting and manipulation conspiracy for his problems. Amusingly, he seems to be doing a decent job of convincing the Bahamian press that shadowy, unproven conspiracies, not his company's cash-torching ways, are responsible for the stock's collapse. (Pegasus burned more than $4.6 million in the first nine months of 2006 -- a fact the Bahamian press corps could confirm simply by clicking here.)

Is there a pony in there somewhere?
As you can see, the majority of the stocks in the CAPS hall of shame are dominated by bulletin board or Pink Sheets stocks, but this month, we also got a surprise entry with REIT Post Properties. It has only 20 ratings, but they are uniformly negative. CAPS players are mostly mum on the reasoning behind the unanimous Red Fonzie, but the two comments we do find tell us this:

  • "Ridiculously overvalued with constant analyst downgrades and price target readjustments. This stock is going nowhere but down. Large number of short sellers holding now as well."
  • "Return on equity of about 2% says a lot about how effective management is. Projected growth rate is 6%."

As I write this, the stock is trading not too far from its 52-week high. Are our CAPS skeptics right about the coming downfall? Time will tell, and CAPS will keep score.

What's it all mean?
One of the most annoying things about Wall Street is that the vast majority of the babble out there is entirely positive. Most analysts' calls on stocks are positive. The spin on most stocks (delivered by these pundits because they're on the speed dial of "journalists") is positive. The junk on most message boards is overwhelmingly positive, too, and anyone who's the least bit critical of a stock is instantly labeled a "short."

Nobody likes a grumpus, I guess. Except for Motley Fool CAPS.

CAPS rates stocks based on these investor opinions, but it's not simply a popularity contest. CAPS is smarter than that. It doesn't just look at the number of thumbs; it looks at the quality of the stock-pickers wielding them. Because CAPS keeps track of players -- more than 22,000 of them so far -- it knows who's usually right and who's not, and it rates the stocks accordingly.

That doesn't mean every low-rated caps stock is a complete loser. National Dentex, for example, seems to be a victim of ye olde CAPS dogpile. I gave it a thumbs-down because of its declining margins and returns, and because I know a bit about that biz, and because I don't buy the "story." Soon, word was out -- I'm currently the No. 3 player, and people tend to borrow picks from top-10 players -- and poor Dentex feels the sting.

But nothing is set in stone. CAPS is all about accountability. So if the dogpile turns out to be wrong on a stock like Dentex, the players' scores will suffer accordingly, and their influence on the ratings of other stocks will diminish as well. CAPS will get smarter, and, most likely, so will the players who missed the call.

Foolish bottom line
CAPS is a good time, but it's also a great way to get a read on what some very smart people think about stocks. I dare say you'll learn more about penny-stock superstar Javo Beverage from the commentary on CAPS than you will from reading the company's own PR. Opinions are just opinions, of course. But at least at CAPS, you know the record of the opinionators' previous calls.

CAPS is free to use, so if you've got a contrary opinion, or if you think you know the next big loser, share it with the rest of us. Click here to sign up.

CarMax is a Motley Fool Inside Value pick. For more information on the market's best bargain stocks, check out Inside Valuefree for 30 days.

At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.