After Tuesday's post regarding possible values in several beaten down stocks I thought it would be appropriate to post a top five of beaten down stocks that I wouldn't touch.
The interesting thing about the stock market is that one must be very discerning when trying to pick out companies that will turn around when things are going terribly for them. For every one company that will turn it around and do very well, there are probably a couple of companies that may never get back to their previous highs and may not even make it through the downturn. This list will focus on five stocks that I believe are being called turnaround or value plays in some areas, but they may well turn out to be so-called value traps.
1. Washington Mutual Inc. (NYSE:WM) I simply do not want anything to do with this company at this point. I'm not predicting bankruptcy, but the amount of credit market losses this company will end up taking could be enormous. The books here have not been opened up fully yet. I can't think of many companies with a worse loan portfolio.
2. KB Home (NYSE:KBH) At some point the housing stocks will be a good buy, but I think it will be quite a while. Also, other competitors such as D.R. Horton (NYSE:DHI) have withstood the housing market freefall better than KB Home. I know it has been well documented, but the losses this company is incurring in the fiscal year 2007 are astounding. Just 60 days ago the average estimate was for a loss of $3.02 a share, but now the estimate is for a loss of $7.61 per share.
3. Advanced Micro Devices (NYSE:AMD) There is something that makes me very uncomfortable about holding stock in a company that is just consistently eaten alive by a competitor. INTC has been in the business of making AMD look bad for years, and the end doesn't appear to be near.
4. Harley-Davidson (NYSE:HOG) Harley-Davidson is thought of as one of the better brands in this country, which is why it is probably a shock to many that this stock shows up on this list. This is not your fathers Harley-Davidson though, it is a company with severe problems and no real guidance for the future. Recent earnings projections are bleak and extremely unclear. I'll pass.
5. Fannie Mae (NYSE:FNM) I put this one at number five because I do think that Fannie Mae will eventually come back and be perfectly fine, but I think there some major shoes to drop from this company in the near future. Freddie Mac (NYSE:FRE) has had well documented problems, and Fannie is likely to have at least as many problems if not more because of its more aggressive portfolio of mortgages.
What do you think? Think I am way off base with these five or on the right track? Give me some feedback on how you feel about these five and why you feel that way.
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