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December 22, 2008

Five More Stocks with Zero Value

We'd prefer a pack of gum to these businesses.

Morningstar
by Matthew Coffina

Here's the original report from Morningstar, picked up yesterday by The Washington Post.

Last month, we highlighted five stocks, each with a fair value that we estimated at a nice, round "zero." Since then, zero-dollar fair value estimates have experienced a virtual renaissance, with the total number of such calls more than doubling to 32 (Click here to see a full list). I thought this phenomenon merited a second look, so this month, we present five more stocks that look completely worthless to Morningstar's team of analysts.

Before diving into this month's picks, there are two things I'd like to address. Last time, an adoring fan sent me an e-mail to express just how valuable he found my article--about as valuable as the featured stocks. He had a valid point though. So what if we think these stocks are worthless? What are you, as an investor, supposed to do about it?

Well, we probably wouldn't recommend shorting these stocks. In many cases, the share prices have already fallen near zero, leaving little upside and potentially infinite downside. Also, put options are rarely available at a strike price that would make them worthwhile.

As with most of our 1-star calls, the primary intended audience is the company's existing shareholders. After all, if you can sell something worth $0 for 50 cents, you're getting a terrific deal. Besides, our primary goal in generating fair value estimates is to be as accurate as possible given the available information. If we think a stock is worthless, there's no point in saying otherwise.
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Forest City Enterprises (FCE.A)
From the Analyst Report: "At nearly 83%, Forest City's debt/total gross PP&E is much higher than peers'. With EBITDA/interest expense expected to dip below 1 times during the next three years, Forest City could face severe financial distress, since it may need to refinance debt at ever-increasing interest rates while operating cash flow declines."

article

NoLandGrab: Another audience that ought to be paying close attention — beyond current FCE shareholders — is those New York State and NYC elected officials contemplating shoveling more taxpayer money at the company's stalled Atlantic Yards project.

Posted by eric at December 22, 2008 4:45 PM