More Tips for the Timid
By Herb Greenberg
Senior Columnist
3/10/00 2:47 PM ET
In keeping with this column's series on tips to spot financial trouble, I can only say, "Why didn't I think of that?" after reading what some readers wrote.
Without further ado:
Check old press releases to see how much a company delivers on its promises of such things as new products, projects and stock buybacks. (Thanks, Bobby Atkinson.)
Also from Bobby, be on the lookout for investor relations people who don't quite tell the whole truth. He remembers someone from U.S. Surgical saying, "The stock is down due to rumor-mongering by short-sellers." Says Bobby: "That was just before J&J (JNJ:NYSE - news - boards) handed their head to them with reusable instruments." After that U.S. Surgical's stock really got clobbered.
Be wary of a company that seems to have its printing press working overtime running off press releases. It's a red flag to Matthew Felix, who recalls, "When I was looking at Cabletron (CS:NYSE - news - boards), right before they really started to get into trouble [a few years ago], they started to rhythmically release one and sometimes two press releases a day. These basically were just a running update of the contracts they had signed the previous day. Some big, most not very big. You would think this would be a normal part of business and not a news item. The stock soon went from 20 or so to around 7."
Rather than reading the reports of analysts who rate the stock, Bernie Unger prefers reports from analysts who rank the debt. That's what kept him out of trouble on CKE Restaurants (CKR:NYSE - news - boards), the fast-food company that is no stranger to this column. "While the analysts at the brokerage houses usually parrot the company line and almost always present a cheery outlook, S&P and Moody's usually play it straight," Bernie says. "A couple of years ago when analysts had CKR as a strong buy right across the board, the debt-raters raised serious concerns about CKR's ability to execute on the Hardee's turnaround. The good news is, these services usually put the salient features of their report as a press release, so it's free for everybody to see. [Check out company news on TheStreet.com or Yahoo! Finance.] If the debt instrument stinks ['with negative implications'], can the equity instrument be much better?" I'd agree that credit analysts can serve as a much better early-warning indicator than equity analysts, because they're looking at a company's ability to service its debt, which strikes to the heart of its balance sheet. However, surprisingly, they also miss quite a few!
Finally, beware of what Mark daSilva calls "cutesy" ticker symbols. "I am extremely hesitant to invest in a company with such a moniker, as I feel it provides insight into management's character," he says. Sticking by that rule kept him out of a number of fiascoes, including Just For Feet (FEETQ:Nasdaq - news - boards), Systems of Excellence (SEXI:Nasdaq - news - boards) and Steve Madden (SHOO:Nasdaq - news - boards). |
