Seven Stocks Worth Avoiding
There are several stocks in the S&P 500 that may be worth avoiding due to the fact that they are generating negative earnings, have negative operating cash flow, and a high debt to capital ratio.
Advanced Micro Devices, Inc. (AMD) Negative earnings of $5.10 per share. Negative operating cash flow. Debt to Capital Ratio: 98%
SLM Corporation (SLM) Negative earnings of $0.69 per share. Operating cash flow of negative $5.7 billion. Debt to Capital Ratio: 97%
MBIA Inc. (MBI) Negative earnings of $12.29 per share. Negative operating cash flow. Debt to Capital Ratio: 94%
Verisign, Inc. (VRSN) Negative earnings of $1.87 per share. Negative profit margin. Debt to Capital Ratio: 93%
Popularity: 33% [?]
More Market Swings Are On The Way
Early headlines on April 2 would have been far better a day sooner. Then we would have read them for what they are: a late April Fool joke. “Wall Street rallies on HOPE” and “FASB gives companies (read: BANKS) more leeway to value assets”.
A later headline of the day reads: “World markets surge as US data boosts recovery hope”. Lest we forget, it is our government pushing these numbers out the door to an eager press - and for many reasons, it is in the interest of the governing party to make things look as bright as possible, especially when our President is speaking to the world from the G20 meeting.
At the end of the day the market is up another 200 points! But did it climb, or was it pushed? We will never know, but do not ever discount the ability of the President’s Working Group on Financial Markets, otherwise known as the Plunge Protection Team, to move the Dow to whatever level is deemed desirable by covert powers on high.
Another illustration of the strength of Federal government muscle was the coercion of the FASB by Congress. New FASB wording states that pricing of assets on balance sheets will now be at “orderly sale” value, as opposed to “forced” or “distressed”. Who gets to decide what is an “orderly sale” value?
Popularity: 29% [?]
A Strong U.S. Dollar Isn't In Anyone's Best Interest
In ordinary times – times when interest rates are positive, inflation is a greater concern that deflation, and recovery from recessions is a foregone conclusion – the effect of a fiscal stimulus is usually to strengthen the currency of the country involved. It might reduce confidence in the currency, which would make the currency less valuable at any given interest rate, but it will normally cause the interest rate to rise enough to offset that effect.
In a sense this has to be true. A country running a fiscal deficit needs to attract enough capital to finance that deficit. By whatever means – generally by raising interest rates – it must make its currency attractive enough to attract that additional capital, and the value of the currency will rise as the demand for it increases.
Granted, there are other options. In theory, a country can finance an increased deficit internally, but this requires households or businesses to increase their saving enough to offset the deficit, which usually doesn’t happen. Or a country can try to create the necessary capital out of thin air by using monetary policy. In ordinary times that’s usually considered a bad idea because it tends to lead to inflation.
Needless to say, these aren’t ordinary times. Households and businesses are suddenly all too eager to save, and inflation risks are for the moment outweighed by deflation risks. The “natural” effect of a fiscal stimulus – to raise the value of the currency – doesn’t happen, because the stimulus is fully accommodated internally by monetary policy. In the absence of an explicit exchange rate policy, the value of the currency depends on the market’s judgments about what the uncertain future might hold.
Popularity: 10% [?]
