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.
List #1: Death by Debt
These firms have
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.
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.