Garbage Stock Overload
October 15, 2009
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RELATED TICKERS: MNI
, GTN
, DTG
Well, it's official that the Dow Jones Industrial Average has crossed 10,000 yet again and the S&P 500 is closing in swiftly on that 1100 mark, but how far have we really come? If you look at expected earnings from all S&P 500 companies, the average earnings decrease expected in Q3 is 17% and yet we are just a hair above where we were last year on all three indexes. Understanding the criticism that the market doesn't exactly value things rationally in irrational times, I still have to be very skeptical of a move where we could lose nearly 1/5th of all profits and be HIGHER than where we were last year. This is definitely something that makes me support TMFMarathonMan's (I hope thats who posted the article) hypothesis that irrational exuberance may be making a comeback, or at least irrational expectations. Unemployment is leveling and yet still rising, junk bond rates are soaring, treasury yields are falling, but the truly horrifying fact is just how many of my so-called "garbage stocks" have taken off.
I think its best to define what I refer to as a garbage stock. A garbage stock in my opinion is a long-term money pit that is usually of junk credit status, highly indebted, and must cut staff and/or production just to control costs enough to meet their bills. They don't deserve huge rallies or your hard earned money and most are definite bankruptcy candidates. Yeah, I know that's not the best definition of what I'm trying to convey, but trust me they are garbage. I'm going to use this blog to highlight some of the most prevalent garbage companies out there, and no DragonLZ I'm not using this blog to pick on you in any way, you clearly have a good grasp of technical analysis, but the majority of your favorite picks are absolute "garbage" on a fundamental scale.
So let me begin a mighty long list of garbage companies...
McClatchy (NYSE: MNI)
Move since 03/09/09: ↑ 753.66%
McClatchy is a newspaper company that owns and operates 30 daily newspapers and roughly 50 non-local publications. It just so happens that they also reported their Q3 figures today which showed just how deep they must go into cost-cutting to meet their figures. Although they reported a 28 cent quarterly profit, they saw Q3 revenues dip 28% and this is a trend that should continue going forward. Really, how many more jobs need to be cut? Well, it doesn't matter if they can't get ad revenue up and with their online business being only 1/6th of the pie and only up 3% for that matter, I say they're screwed! Couple that with 1.97 billion dollars in both short and long-term debts and even with profitability they'll never climb out of this mess they're in.
Gray Television (NYSE: GTN)
Move since 03/09/09: ↑ 688.89%
Gray Television operates as a broadcast company with 36 owned stations. Gray has produced four consecutive quarterly losses which have far exceeded analysts expectations and we've rewarded this with a nearly 700% increase in stock price. With over 795 million dollars in debt and a minimal cash position with absolutely no profitability expected until 2011 I have zero clue as to why this is moving higher fundamentally. Today's story that revenue will be 1-2 million higher than previously forecast doesn't hardly dent the 20% drop in revenues they are witnessing this year. Gray is a garbage stock that is probably heading down the path of bankruptcy protection in the next 3 years.
Entercom Communications (NYSE: ETM)
Move since 03/09/09: ↑ 878.26%
Entercom Communications is a radio broadcasting company operating around 110 stations currently. My problem with Entercom is their non-existant revenue growth which shows a 14% drop in 2009 and a modest 5% growth in 2010, yet we've seen the stock take off almost 900%! Did I mention the company is sporting over 800 million dollars in debt with a leverage ratio of 5.6. Anything over 3 is considered dangerous territory, so take a wild guess where 5.6 fits into the equation! Earnings are due out any day now and I can almost guarantee a drop on the news. The long-term future here looks grim.
Sirius XM Satellite Radio (NASD: SIRI)
Move since 03/09/09: ↑ 286.67%
Sirius XM Satellite Radio provides satellite radio service in the US and Canada. I could literally write a manifesto on how much I despise Sirius XM but I will keep it short and sweet. This company has 3.3 billion dollars in debt, has and will never turn a profit, and is currently dealing with the biggest downturn the automobile industry has ever seen. Ad revenues are down on top of that and from a fundamental perspective outside of their continued losses, 15 times book at just 58 cents per share? Shouldn't this give you a clue that management's arrogance will be its downfall? I will personally throw a Sirius XM Chapter 11 party at my house the day they file!
Oncogenex Pharmaceuticals (NASD: OGXI)
Move since 03/09/09: ↑ 820.41%
Oncogenex Pharmaceuticals is a biopharmaceutical company engaging in the development and commercialization of therapies to treat cancer. Currently they are sporting a whopping ZERO approved drug candidates with only one even remotely late in clinical studies. Ongogenex has not produced a single cent in revenue to date and although I haven't looked up their defecit since inception, I'd have to assume its very large. How does 49.4 times book sound, or infinite times price to sales? Even IF their late clinical study OGX-011 gets approved, they are looking at only 4 million dollars in revenues in 2010 and a loss of at best $2 per share. This means their 5 million dollars in cash will last them only a few more months and they won't be trading below 50 times sales anytime in the next 18 months. That's what we call a one-and-done folks!
Dollar Thrifty Automotive Group (NYSE: DTG)
Move since 03/09/09: ↑ 3652.11%
Dollar Thrifty Automotive Group is a car rental company under the names Dollar and Thrifty. No that is not a misprint, they really are up over 3600% in just a matter of seven months! What I find even more staggering is the fact that they have 1.84 billion dollars in debt and it's all due within the next 54 months! Ok, sure I'll give them the fact that they're turning a profit right now on stagnant revenues. Look at those 2009 revenues, down 6% and in 2010, up 5%, that's called stagnant folks! Explain to me how they are going to pay 1.84 billion dollars in revenue over the next 54 months and you deserve a cookie, in the meantime I have absolutely no love for the auto sector. Seriously, have you seen anyone going on vacation recently because I sure as hell have not!
Radio One (NASD: ROIAK)
Move since 03/09/09: ↑ 374.29%
Radio One is a radio broadcasting company that operates 53 stations nationwide. Things have been so bad here that they just decided to delay the annual shareholders meeting until the books have been fudged enough to explain how they are even surviving. Ok, so maybe I'm being a bit critical, but as ad revenues continue to collapse they've seen revenue down drop 15% in 2009 and are expecting another single digit drop in 2010. How does 673 million dollars in debt with your interest rate on 669M of that debt being 6% to as high as 9% sound? It doesn't matter how deep the cost cuts are here, this is bankruptcy fodder if you ask me.
Targacept (NASD: TRGT)
Move since 03/09/09: ↑ 758.55%
Targacept is a design, discovery and development company that focuses on the central nervous system. I know I'd certainly be nervous if I was sporting a price to book of 10 and a price to sales of nearly 24. Targacept has plenty of clinical studies going on but not much in that way of a guaranteed product. Too many times I've seen these companies lose 25 million dollars a year, just like Targacept and poach shareholders left and right with stock offerings. Oh yeah, did I mention that TRGT just offered another 2.2 million shares at $21. Losses are expected to be in the range of $1.00-1.10 for the next two years while revenues remain stagnant or even fall off completely. Another example of how to dupe investors.
I will pull a Portefeuille and continue to add to this list as I find more garbage stocks available. I'm going to cut it short here because its time to go throw around the pigskin.
UltraLong
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