A Least-Wanted List for Stocks


By Michael Kaye, CFA While Standard & Poor's stock screens normally focus on issues that present attractive investment opportunities, once in awhile we take a different approach and try to find issues that investors should avoid. This time around, we decided to find stocks with the weakest marks in three proprietary S&P investment-ranking categories.

We started with our

STARS list. While you may have to look hard to find sell- or avoid-ranked candidates from analysts at some brokerage firms and research outfits, S&P has a list of 20 stocks ranked 1 STARS (sell) and 117 with 2 STARS (avoid). Our analysts expect those issues to underperform the S&P 500-stock index in the next 6 to 12 months. And we widened our scope by looking for those issues with an average ranking equivalent to an S&P designation of 2 STARS from other Wall Street analysts, based on data from I/B/E/S.

LOW QUALITY ASSURANCE. Then we went deeper in our search for some of the least desirable stocks in the S&P coverage universe. From the list above, we culled those issues with an

S&P Fair Value ranking of 2 or lower -- issues whose current price either modestly or substantially exceeds their fair value, according to S&P's proprietary quantitative model. (The model calculates a stock's weekly fair value, the price at which we believe an issue should trade at current market levels based on fundamental data such as earnings growth potential, price-to-book value, return on equity, and dividend yield relative to that of the S&P 500.)

Then we used one more indicator exclusive to S&P -- our quality rankings, which measure a company's dividend and earnings performance over a 10-year period. We searched for those issues with a quality designation of B, B- or C, an indication of below-average performance over the long term.

Our search turned up these 15 names:

Company/ticker S&P STARS Rank

S&P Fair Value Rank

S&P Quality Rank

Advent Software (ADVS) 2

1

C

Amerada Hess (AHC)

1

2

B

BRE Properties (BRE)

2

1

B

DuPont (DD)

2

2

B

Duquesne Light (DQE)

2

2

B

Georgia-Pacific (GP)

2

2

B-

Insituform Technologies (INSU)

2

2

B

MeadWestvaco (MWV)

2

2

B-

Prime Hospitality (PDQ)

2

2

B-

Proquest (PQE)

1

1

B

Silicon Valley Bancshares (SIVB)

2

1

B

Tenet Healthcare (THC)

2

1

C

Weyerhaeuser (WY)

2

2

B

Whole Foods Market (WFMI)

2

1

B

Wisconsin Energy (WEC)

2

1

B

Kaye is an analyst for Standard & Poor's Portfolio Services


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