Five Stocks That Look Completely Worthless
We see zero value in these near-bankrupt businesses.
It feels like my job as author of our monthly "Most Overvalued Stocks" article gets harder every day. Our stock rating system is inherently contrarian: When stock prices fall more than our estimates of firms' intrinsic values, we end up with more 5-star calls and fewer 1-star calls. As I write this on Monday, Nov. 10, we had only 16 1-star stocks in our coverage universe thanks to the market's almost unabated slide. Click here to view an updated list.
Luckily for me, there's one kind of 1-star call that never goes out of style: the zero-dollar fair value estimate. This is a tool we use sparingly. After all, every company has at least some "option" value: The stock price can never go below zero, but there is at least a small chance that the company could be worth some positive amount down the road. To any investors looking to unload their stocks for free, I have $0 sitting right here in my wallet for you (although, commissions could make even $0 too steep a price to pay).
We use the zero-dollar fair value estimate when we think that bankruptcy is much more likely than not. We've already had several successful $0 calls this year. Development-stage drug firm Atherogenics went bankrupt in October, but Morningstar analyst Bill Buhr declared the shares worthless way back in November 2007. Newspaper publisher GateHouse Media was recently delisted, which analyst Tom Corbett saw coming in July. Electronics retailer Circuit City has now declared bankruptcy--and analyst Brady Lemos estimated the company's fair value at $0 back in August.
Of the 16 remaining 1-star calls in our coverage universe, an incredible 15 of them have $0 fair value estimates. Below, we highlight five companies our analysts think are headed, sooner or later, for bankruptcy court.
Citadel Broadcasting Corporation (CDL)
From the Analyst Report: "Citadel Broadcasting's poorly timed acquisition of ABC Radio Networks only magnified the company's exposure to a stagnant industry with meager growth prospects. Given its substantial debt burden and declining cash flows, we think Citadel's shares could be worthless."
General Growth Properties (GGP)
From the Analyst Report: "Punch-drunk on easy credit, retail real estate investment trust (REIT) General Growth Properties is now staggering under the weight of its massive debt load. Raising capital or finding buyers for its commercial real estate assets may be difficult in the current credit-constrained environment, so we think it's likely that General Growth's equity value will fall to $0."
Mesa Air Group (MESA)
From the Analyst Report: "The future for regional carrier Mesa Air Group looks bleak, as the ill effects of both contract restructuring and a potentially devastating lawsuit mount.... Mesa boasts a debt/capital ratio of 0.93. To make matters worse, the firm recently paid roughly $52 million in a legal settlement...leaving the firm what we believe to be an insufficient $46 million in unrestricted cash."
Trans World Entertainment (TWMC)
From the Analyst Report: "In today's fiercely competitive retail environment, pure-play music and video retailers like Trans World Entertainment are facing an uphill battle, and we think the long-term outlook for this company is dismal.... The balance sheet is in decent shape,...[but] the company carries significant long-term lease obligations that aren't reflected on the balance sheet."
deCODE Genetics (DCGN)
From the Analyst Report: "DeCODE Genetics engages in some provocative research projects.... However, the company has yet to gain approval from the Food and Drug Administration for any of its products, and it is currently facing a severe liquidity crisis. It appears more likely to us that deCODE might no longer be a viable entity."
Matthew Coffina does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.