The S&P 500 is now more than half a decade into what has become one of the stock market’s historic rallies. Since its dreadful nadir in the depths of the financial crisis on March 9, 2009, the S&P has soared an incredible 200%.
In other words, the stock market has tripled in less than six years.
But sometimes a rising tide doesn’t lift all boats, and Wall Street is still full of stocks that investors would be wise to sell or avoid entirely. Here and there, lurking ominously in dark and gloomy parts of the market, are doomed stocks — stocks on the path to $0.
The most prominent company that’s making a beeline for zero is RadioShack Corporation (NYSE:RSH), but with shares trading for about 50 cents a pop and bankruptcy seemingly imminent, RSH is too obvious to be interesting.
RadioShack stock is obviously one that you should dump, but if you own any one of the three stocks that follow, they’re not bad stocks to sell either:
Stocks to Sell Now: ITT Educational Services, Inc. (NYSE:ESI)
One-Year Stock Performance: – 75%
Quick Ratio: 0.9
ITT Educational Services, Inc. (NYSE:ESI) runs for-profit colleges, primarily ITT Technical Institute.
Very few industries can be indicted as a whole and written off for failure, but the for-profit college space is right up there with dial-up Internet services and haberdasheries when it comes to its economic outlook.
On Thursday, President Barack Obama outlined a bold proposal that could have profound effects on the for-profit college industry — and ESI stock. Obama wants to make the first two years of community college free “for those who are willing to work for it.” A government-sponsored community college education would eliminate much of the demand for the for-profit postsecondary education, which is already on thin ice with the government.
The Department of Education is hip to the ineffectiveness of for-profit schools as a whole; students who take government loans to pay for them defaulted at a 19.1% rate between October 2010 and October 2011, far higher than the 11.6% rate seen as recently as 2007-08.
With peers like Corinthian Colleges Inc (NASDAQ:COCO) already on their deathbeds and ESI desperately trying to raise money as its profits erode in the face of federal scrutiny, ESI stock is headed for $0.
Short sellers tend to agree, which is why 63% of ESI’s float is being sold short.
Stocks to Sell Now: Sears Holdings Corp (NASDAQ:SHLD)
One-Year Stock Performance: -19.8%
Quick Ratio: 0.1
Sears Holdings Corp (NASDAQ:SHLD) has been a burning heap of trash for a number of years now. Its liquidity problems are becoming more pronounced and sooner or later, the buzzards are going to be feasting on SHLD as becomes emaciated.
SHLD is leveraging itself to the hilt, and CEO Eddie Lampert has been a relentless advocate for perpetual borrowing as the company gradually sells off bits and pieces of itself to meet those debt obligations. It’s a vicious cycle, and horrible for SHLD stock investors. Ironically, Eddie Lampert himself is a pretty major stock investor. But he also loans SHLD money, so unless SHLD defaults (which isn’t outside the realm of possibility), Lampert should be able to make some money in a side-hustle.
Sears has a laundry list of failed initiatives and missed opportunities. One of the more recent infractions involved Sears and Kmart (which is a subsidiary of Sears) canceling thousands of online layaway orders in the midst of the holiday sales rush. This shows a gross incompetence and inability to execute, which has become something of a trend for SHLD. From its bungled plan to use iPads as cash registers to its curbside pickup initiative that appears to be nearly impossible to implement to the miserable initiative that was Mygofer, SHLD doesn’t exactly have a track record that inspires confidence.
Like ITT, the shorts are hungrily betting against SHLD — 46% of Sears’ float is sold short.
Stocks to Sell Now: DryShips Inc. (NASDAQ:DRYS)
One-Year Stock Performance: – 71%
Quick Ratio: 0.6
Finally, the Greece drybulk shipper DryShips Inc. (NASDAQ:DRYS) is stuck between a rock and a hard place, and if oil prices remain subdued for much longer, DRYS stock may be destined for $0.
Drybulk shipping is the practice of shipping large, unpackaged quantities of commodities, and one of the biggest commodities that DRYS ships is petroleum. With crude oil prices now off more than 50% from their 52-week highs, DryShips’ rates are heading south.
Not only is DryShips debt-ridden, based in a financially strapped Greece and at the mercy of a commodity in a vicious downtrend, but it’s doubly exposed to oil prices with its majority-owned subsidiary, Ocean Rig UDW Inc (NASDAQ:ORIG). Ocean Rig is a deepwater driller, and needless to say, the contract rates for deepwater drillers are also falling rapidly.
On top of that, DRYS and its liquidity issues put the company at risk of diluting its stock further, repeating a move it pulled back in October that sent DRYS stock 23% lower.
The quick ratio, which measures a company’s liquidity and indicates dangerously illiquid levels below a reading of 1, is at an uncomfortable 0.6. With the Baltic Dry Index — which measures the going rates to ship commodities by sea — flirting with 52-week lows, there’s no end in sight for DRYS stock’s woes.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.