Sign of a Bear Market: Morningstar Picks Five Stocks Going to Zero

Posted by: Aaron Pressman on November 13, 2008

It seems more than a little quaint given the current state of the stock market that analyst “sell” ratings were once the center of so much controversy. Wall Street firms were loath to tag companies with a “sell” and often used a downgrade to the “hold” rating as a subtle, wink-wink warning that a stock might tumble. But these days, stocks are tumbling all over. Morningstar’s equity analysts have gone a step further than dubbing some with the “sell” label. They’re warning of five stocks that are completely worthless — five stocks they say may go to zero.

And it’s hard to quibble with their choices of companies with a fair value of nada. Citadel Broadcasting Corporation (Symbol: CDL) is a highly-leveraged radio station owner with declining cash flow. Mall owner General Growth Properties (GGP) is staggering under an immense debt load and can’t find fresh capital at the same time retail sales are plunging. Regional airline Mesa Air Group (MESA) doesn’t have the cash on hand to weather the weak economy, according to Morningstar. Trans World Entertainment (TWMC) is in one of the worst niches, selling DVDs and music CDs in retail stores. And deCODE Genetics (DCGN) is running down on cash without having any of its drug approved by the FDA yet, Morningstar warns.

It’s a convincing if bracing piece which ought to stimulate further analysis. Behavioral economics has shown that people are loath to sell a stock that has dropped in price because they’re embarrassed and may hold out hope that the loss will be erased eventually. But that’s a terrible posture for today’s market. Maybe instead of bargain hunting, it’s time to take stock of the stocks you already own and get rid of any other potential zeros.

Reader Comments

BizBlogged1

November 20, 2008 2:58 AM

The global economy continues to rely upon American consumers borrowing to buy goods they don’t need that are mostly manufactured in China.

Finance blog, finance,economics,Corporate finance,Personal finance,Investing,Marketing/

JC

December 4, 2008 1:32 PM

I have a stock that I bought with the Potash boom, PON Potash North. Bought her at $3.60, she's down to twenty cents Dec 4
Should I sell for tax loss before it possibly goes bankrupt? Or hang on for a miracle?
John

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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