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Stingy Investor Tip Sheet

Lehman and the languishing laggards list

It's shaping up to be a critical weekend for the once mighty Lehman Brothers. Will the firm find a saviour or will it go the way of Bear Stearns? For the sake of all involved, I hope that Lehman survives.

But for shareholders, the damage has already been done. Its stock is down 94.4% this year and it's off 89.3% over the last five years. So, even if Lehamn fails entirely, shareholders will only lose 5.6 cents from the dollar that they had invested in the firm at the start of the year. (Not counting dividends.) Essentially, Lehman shareholders have already been wiped out.

Lehman's plight got me thinking about other large-cap stocks which have fallen on hard times. My laggards list is composed of firms in the S&P500 that have fallen more than 50% this year. The list is stuffed full of brand-name firms. Even the hip Whole Foods has declined 54.8% this year.

Imagine stepping back in time about five years and asking yourself if you'd have expected Bear Stearns, Lehman Brothers, Washington Mutual, and AIG to have all fallen by about 80% over the next five years. I sure wouldn't have made that call. These days we're all wondering if any of these firms is likely to survive the next five years.

Here's the quandary. Are the firms on our losers list likely to persist in their unprofitable ways? There is some evidence to suggest that negative momentum persists in the short term. Say for about one year or so. But past losers are also likely to become big winners over the next four years.

Nonetheless, catching falling knives can be a dangerous and nerve-wracking occupation. You want to be assured that the firm in question will survive and that its current share price represents a truly excellent value. Even after such reassurances, it usually doesn't hurt to wait for a hint of a turnaround.

But fortunes can be made by the brave who step up and buy, after doing some significant due diligence, near the point of maximum pessimism. That's why it is a good idea to keep an eye on the worst performers for a discarded gem or two.

Company  		  Price  YTD Gain 5Yr Gain Yield
======================== ======  ======== ======== =====
Lehman Brothers (LEH)	  $3.65	 -94.4%	   -89.3%  1.4%*
Washington Mutual (WM)	  $2.73	 -79.9%	   -92.6%  1.4%
AIG (AIG)		 $12.14	 -79.2%	   -79.8%  5.0%
National City (NCC)	  $4.82	 -70.7%	   -84.2%  0.8%
NVIDIA (NVDA)		 $10.19	 -70.0%	    58.0%  0.0%
MGIC Investment (MTG)	  $6.81	 -69.6%	   -87.7%  1.5%
Merrill Lynch (MER)	 $17.05	 -68.2%	   -68.5%  7.2%
Ciena (CIEN)		 $12.00	 -64.8%	   -75.2%  0.0%
XL Capital (XL)		 $17.78	 -64.7%	   -76.2%  4.1%
Wachovia (WB)		 $14.27	 -62.5%	   -65.2%  1.4%
MEMC Electronic (WFR)	 $34.34	 -61.2%	   153.4%  0.0%
Tesoro (TSO)		 $19.06	 -60.0%	   325.0%  2.2%
Manitowoc (MTW)		 $20.95	 -57.1%	   262.0%  0.4%
Titanium Metals (TIE)	 $11.46	 -56.7%	  1366.9%  2.6%
International Game (IGT) $19.51	 -55.6%	   -27.4%  2.9%
Gannett (GCI)		 $17.53	 -55.1%	   -77.2%  9.0%
NYSE Euronext (NYX)	 $39.64	 -54.8%	     N.A.  3.1%
Whole Foods (WFMI) 	 $18.43	 -54.8%	   -31.6%  4.2%
Source, September 12, 2008
* Corrected to reflect its recent dividend cut.

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09/13/2008   12:50 AM EST   Permlink   save & shareMomentum

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