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.