Name Brand Stocks on the Edge of Obliteration

On Friday, a client asked me to generate a list of stocks trading at "less than cash." As I went about this process and identified almost 1000, I quickly realized how many companies have been wiped out. Many of the names were already in bankruptcy, but many others seem to be headed there. I noticed how many stocks are trading below $1 in my system (StockVal), and it blew me away. I then created a list of 290 names that trade below $1 and are down over 90% in the past year. While I won't publish all of the names, I will say that they are from all sectors of the economy. Suffice it to say, most of these companies are carrying large debt-loads.

By sector, here are some of the names you might know as a consumer or an investor:

• Energy: Uranium Resources (URRE), Pacific Ethanol (PEIX), Superior Offshore (DEEPQ)

• Materials: Chematura (CEM), Boise (BZ), Smurfit-Stone (SSCC) (I called that one)

• Industrials: Avis (CAR), Medis Technologies (MDTL), Building Materials Holding (BLGM)

• Consumer Discretionary: Sirius (SIRI), Pier 1 (PIR), Borders (BGP), Casual Male (CMRG), Select Comfort (SCSS), Trump Entertainment Resorts (TRMP), Westwood One (WON)

• Consumer Staples: Rite Aid (RAD), Pilgrims Pride (PGPDQ), Jones Soda (JSDA)

• Healthcare: KV Pharma (KVA), Jazz Pharma (JAZZ) and a plethora of underfunded biotechs

• Financials: Fannie Mae (FNM), Freddie Mac (FRE), General Growth (GGP)

• Tech: Axcelis (ACLS), Nextwave Wireless (WAVE), Kemet (KEM), Navisite (NAVI), Spansion (SPSN), Planar Systems (PLNR)

• Telecomm: Virgin Mobile (VM), Globalstar (GSAT)

• Utilities: 3, but I have never heard of any of them so won't bother...

As the economy withers, it serves investors well to understand what happened to these stocks. For the most part, these firms had too much debt to weather the storm. One of my central themes this year is that there are a lot more companies out there like these than investors realize.

Disclosure: No positions in any stock mentioned

Comments

[css1971:]

"these firms had too much debt to weather the storm. One of my central themes this year is that there are a lot more companies out there like these than investors realize."

Um... Didn't you know? There is more debt than there is credit to pay it. That's the way the money works. It's why there HAS to be "growth".

Feb 01 01:35 PM

[Tom Armistead:]

WHen last I looked, BLGM was trading at 1/10 of book value, after some heavy writeoffs. They have more debt than they can easily repay, but if the asssets are worth anything like what they are on the books for there should be plenty of money left for the shareholders.

Feb 01 01:38 PM

[Alan Brochs...:]

My point wasn't to figure out whether these companies are cheap (they may or may not be) but rather to illustrate the way the market is trending. Investors should be aware that equity values are being wiped out for heavily indebted companies. Mike Santoli, of Barron's, wrote this weekend that many stocks now are just call options on a good bankruptcy.

Feb 01 02:03 PM

[connorport:]

I still think there are alot of opportunities out there in some of these stocks. The good thing here is you are entering these stocks with 90% less cash than the previous year. You can pick 10 out of these and if only 50% return to regular levels and the othes go belly up you would be in a pretty good position to reap some huge rewards.

Some of the Billionaire investors that have lost some serious value this year could regain that value by paying off some of these companies debts at a favorable rate while trading this loan for say 500millions shares of say SIRI. The Debt fear and stock dilution would ease and not only would the repayment be payed back at say 6.75% but they would also gains billions in increased stock value leading the way to reinvestment of those profits into the next favorable company. I think the trickle up affect would be Huge! A couple of strong investors alone could boost many of these companies from the pits of doom and save many investors portfolios and build confidence back in these companies. I think that the simpler it is the better it would work. We always seem to overlook this aspect.

Can anyone get ahold of Warren and Carl and let them know? Really does anyone have any feedback about this idea?

Feb 01 07:09 PM

[Dan Jacome:]

not sure if RAD is consumer discretionary - 65% of their revs come from the back end - ie. drugs. They're getting crushed b/c of their debt load and competition from much better managed companies (WAG, CVS)

Feb 01 09:43 PM

[Alan Brochs...:]

Hey, Dan. Good to hear from you. They were listed in Consumer Staples, not Consumer Discretionary. Yes, it's the debt load...

Feb 01 10:11 PM

[donzelion:]

"Many stocks are just call options on a good bankruptcy." That's pithy and apt. However, "Many stocks are just call options on future earnings" is equally true. Indeed, in a manner of speaking, both are true all the time for every equity out there. The problem is everyone fixated upon the latter, forgetting the former.

When I first started investing (in the post-dot.com crash), it seemed to me that picking through the rubble would be the safest way to get slightly ahead (following Connorport's wisdom) - after all, if the markets are even slightly efficient, and if these stocks had 10x the price 52 weeks ago, without any substantial change in the intervening period, then it had to be that enough stocks would come back up (maybe to 50% off from their highs, but still 5x their lows) to make picking out a basket of fallen players worthwhile.

Never worked - because too many assets are too overvalued, and too many liabilities are too undervalued, and too many people are paid too much money ($18 billion in bonuses on a year like '08?!?!) to make sure everyone forgets the "call option on bankruptcy" and remembers "call option on future earnings" reasoning.

Feb 02 01:02 AM

[Raj B:]

Alan:

Thanks for the article. Would love to have an additional piece of info:

Which companies have market capitalization which is lower than tangible book value ( Equity Book Value less intangible assets)? Which of these companies are profitable?

I would be surprised to find (m)any companies on that list.

Thanks again,
Raj

Feb 02 03:59 AM

[Alan Brochs...:]

Raj, there are many companies that fit that criteria. Check my website for my disclosure of personal holdings and you will see some. If you email me, I am happy to share additional info.



On Feb 02 03:59 AM Raj B wrote:

> Alan:
>
> Thanks for the article. Would love to have an additional piece of
> info:
>
> Which companies have market capitalization which is lower than tangible
> book value ( Equity Book Value less intangible assets)? Which of
> these companies are profitable?
>
> I would be surprised to find (m)any companies on that list.
>
> Thanks again,
> Raj
>

Feb 02 07:06 AM

[Dan Jacome:]

even tangible book isnt a good metric in this market b/c so many companies are sitting on garbage inventory...back out good will, but know that a ton of crap is sitting on a lot of books...

Feb 02 07:45 AM

[Dan Jacome:]

Alan - good to see you, thanks for the confirmation on RAD.

Feb 02 07:46 AM

[Alan Brochs...:]

It goes beyond inventory. Receivables are in doubt, factories and real estate could sell below carrying costs, pension costs are underestimated due to the erosion of investments. Further, many retailers have off-balance sheet exposure to long-term leases.


On Feb 02 07:45 AM Dan Jacome wrote:

> even tangible book isnt a good metric in this market b/c so many
> companies are sitting on garbage inventory...back out good will,
> but know that a ton of crap is sitting on a lot of books...

Feb 02 08:37 AM

[tanista:]

GGP extended their loans till March 15th.

Update You Website. Or are you in with Reuters and delaying the news since you hold a Short Position.

finance.yahoo.com/news...

General Growth gets 6-week loan payment extension
General Growth Properties gets loan payment extension till mid-March
Saturday January 31, 2009, 4:11 pm EST
Yahoo! Buzz Print Related:General Growth Properties Inc.
CHICAGO (AP) -- Troubled mall operator General Growth Properties Inc. has reached agreement with lenders on a six-week extension for payments just as they came due.

The company announced the agreement Friday night as a deadline on the loans was expiring. The new deadline is March 15.

The loan totals were not disclosed in the brief announcement. The Wall Street Journal, citing people familiar with the talks, said they are for more than $4 billion combined.

The company's Chicago headquarters offices were closed Saturday and attempts to reach a spokesman for comment were unsuccessful.

General Growth, the country's second-largest mall owner, is saddled with huge amounts of debt it took on during the real-estate market's boom years when it aggressively bought up assets. Refinancing that debt has proven difficult amid a global credit crunch.

The company owns or manages more than 200 shopping malls in 44 states.

Feb 02 11:19 AM

[connorport:]

How do you explain stocks like say EBAY and others who are trading below the cash some of them have in the bank?

Feb 02 01:31 PM

[Alan Brochs...:]

EBAY is valued at $15 billion, and they appear to have $3.3 billion, so I don't follow your question.


On Feb 02 01:31 PM connorport wrote:

> How do you explain stocks like say EBAY and others who are trading
> below the cash some of them have in the bank?

Feb 02 03:01 PM

[connorport:]

That was a general question not a fact quote. in general terms some stocks that are booming are still trading only about 8X earnings(example SOHU)but others that are level are trading at 20X earnings(Example APPL). Where is a good range to value a stock today? I do as much research as i can as i also run a business of my own but would like to take the opportunity to invest heavy when some stocks have 1/2 or less the value that they appear to have. I have tried using metrix which worked earier in 08 but nothing seems to match todays trading.

Feb 03 02:07 PM

[guliamo:]

I thought there would be more written about PGPDQ
Here's my post on it:
www.marketguru.com/opi...
I would post on SeekingAlpha.. but they didn't think I was good enough..
Cheers mates.

Sep 03 12:44 PM

[meridian575:]

For the Casual Male Retail Group CEO Interview featuring David Levin, head over to yahoo finance:
finance.yahoo.com/news...

Sep 11 11:52 AM