The
Death List includes two stock portfolios that we think are risky business.
Of course, we don’t know for sure that they’re heading down; so don’t
sell them short based on our opinion. However, you might want to do a
little extra due diligence if you own them.
Death
List #1: Death by Debt
These firms have
built up
debt levels that
could be a drag on earnings and cash flow for years to
come. Among other factors, we've employed these
two financial strength tests to
pinpoint our list of potential underperformers.
Leverage Ratio:
total assets
divided by shareholders’ equity. A firm with no
debt would have a leverage ratio of one, and the higher the
debt, the higher the ratio.
Interest Coverage: amount of annual interest covered by a cash flow
measure (EBITDA). A ratio of 1.0 means that annual interest and EBITDA are
equal. Ratios of 4.0 or higher reflect solid balance sheets. Negative
ratios reflect negative cash flow.
Optimum
Hold Period:
4 Weeks
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