When a hyper volatile market starts tossing almost every stock around like a rag, the last thing a company wants to do is to become a bigger target due to a poor or feeble capital structure. Still, some management teams take this risk and shorts are clearly looking for companies that aren’t built for any unforeseen economic hurricanes. Given the recent bearish momentum being picked up by these names, we think their growth-by-debt tactics are finally coming full circle and are the primary cause for why they are currently losing market ground.
The Debt/Equity Ratio illustrates how aggressively a firm is financing its growth via debt. The more debt financing that is used in a capital structure the more volatile earnings can become due to the additional interest expense. Should a firm’s potentially “enhanced” earnings fail over time to exceed the cost associated with debt financing, this can lead the firm toward bankruptcy.
Debt/Equity Ratio: Total Liabilities/Total Shareholders Equity
We first looked for companies that rely more aggressively upon debt in order to finance growth (Debt/Equity Ratio (L.QTR)>3). From this narrowed list of we looked for companies that were illustrating signs of market weakness and/or bearish momentum by underperforming the S&P 500 over the last week and 3 months. We did not screen out any sectors or market caps.
The list is ranked from worst to least worst relative 3-month performance:
1. Community Health Systems Inc. (CYH)
Sector | Healthcare |
Industry | Medical Care |
Market Cap | $1,669M |
Beta | 1.61 |
The company owns, leases, and operates acute care hospitals in non-urban communities. Community Health Systems has a Debt/Equity level of 3.80. The company has lost -4.02% in value over the last week and fallen by -27.99% in value over the last three months. The short interest was 6.40% as of 10/14/2011.
2. DISH Network Corp. (DISH)
Sector | Communication Services |
Industry | Pay TV |
Market Cap | $10,903M |
Beta | 0.71 |
The company provides satellite digital television in the U.S. DISH has a Debt/Equity level of 13.24. The company has lost -5.67% in value over the last week & fallen by -21.44% in value over the last three months. The short interest was N/A as of 10/14/2011.
3. Time Warner Cable Inc. (TWC)
Sector | Communication Services |
Industry | Pay TV |
Market Cap | $19,938M |
Beta | 0.71 |
Time Warner is a cable operator in the U.S. The company has a Debt/Equity level of 3.23. Time Warner has lost -11.84% in value over the last week & fallen by -14.26% in value over the last three months. The short interest was 2.90% as of 10/14/2011.
4. SLM Corp. (SLM)
Sector | Financial Services |
Industry | Credit Services |
Market Cap | $7,020M |
Beta | 1.23 |
SLM originates and holds student loans in the United States. The company has a Debt/Equity level of 36.23. SLM has lost -2.43% in value over the last week & fallen by -11.40% in value over the last three months. The short interest was 1.90% as of 10/14/2011.
5. DIRECTV Group (DTV)
Sector | Communication Services |
Industry | Pay TV |
Market Cap | $33,614M |
Beta | 0.87 |
DIRECTV offers digital television in the U.S. & Latin America. The company has a Debt/Equity level of 15.44. DIRECTV has lost -1.92% in value over the last week & fallen by -11.21% in value over the last three months. The short interest was 2.30% as of 10/14/2011.
6. Clorox Company. (CLX)
Sector | Consumer Defensive |
Industry | Household & Personal Products |
Market Cap | $8,736M |
Beta | 0.43 |
Clorox makes and markets a variety of home consumer products. The company has a Debt/Equity level of 17.14. Clorox has lost -3.92% in value over the last week & fallen by -8.06% in value over the last three months. The short interest was 3.20% as of 10/14/2011.
7. Virgin Media Inc. (VMED)
Sector | Communication Services |
Industry | Pay TV |
Market Cap | $7,785M |
Beta | 1.71 |
Virgin Media is a media and entertainment based in the U.K. The company has a Debt/Equity level of 4.96. Virgin Media has lost -8.60% in value over the last week & fallen by -7.29% in value over the last three months. The short interest was 13.10% as of 10/14/2011.
8. Ford Motor Co. (F)
Sector | Consumer Cyclical |
Industry | Auto Manufacturers |
Market Cap | $45,598M |
Beta | 2.64 |
Ford designs and builds cars around the world and is known as an American icon. The company has a Debt/Equity level of 18.56. Ford has lost -2.12% in value over the last week & fallen by -2.60% in value over the last three months. The short interest was 4.50% as of 10/14/2011.
9. Flagstar Bancorp, Inc. (FBC)
Sector | Financial Services |
Industry | Savings & Cooperative Banks |
Market Cap | $416M |
Beta | 1.94 |
Flagstar Bancorp operates as a savings and loan bank. The company has a Debt/Equity level of 3.11. Flagstar has lost -5.26% in value over the last week & only gained by 2.74% in value over the last three months. The short interest was N/A as of 10/14/2011.
We hope this list helps investors as they do their own due diligence and research on debt-laden companies with bearish momentum.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
