It's almost time to pull the toboggan out of storage and head to the hills for a little winter fun. After all, there's something special about speeding downhill on a crisp winter day.
But going downhill is something stock investors fear and they've been taken on an infernal toboggan ride this year. The Canadian market, as represented by the S&P/TSX composite index, has fallen by about 9 per cent since the start of January.
That disappointing figure hides the extent of the wipeout. Fully 26 per cent of the firms on the TSX qualify as 10-10 stocks. That is, they trade for less than one-10th of their 10-year highs. Astoundingly, more than 230 firms have this dubious distinction, according to data provided by S&P Capital IQ.
As you might imagine, the list of losers is stuffed with resource companies of all sizes. My sympathies go out to anyone connected to the sector – be they workers or owners – because this holiday season is probably a less than joyful one.
The largest of the 10-10 stocks can be seen in the accompanying table and they're sorted by market capitalization from large to small. Not a single one is profitable on a trailing 12-month basis and nearly all of them trade at sharp discounts to book value. Each firm's Altman Z-score – an imperfect gauge of bankruptcy risk – is also listed. Companies with low scores tend to be riskier than those with high scores.
While the market is questioning the staying power of the 10-10 firms, the situation is not without hope. After all, dire visions conjured by the Ghost of Christmas Yet to Come gave Ebenezer Scrooge the kick in the pants he needed to change his ways. Similarly, the risk of failure provides more than a little incentive for firms to buckle down and try their damnedest to survive.
If they can make it through the current downturn, their shareholders might do very well from these levels. But, in many instances, betting on them is akin to playing the lottery. Some of the firms will likely fail – at least from the viewpoint of current shareholders – while others might pay off in spades.
BlackBerry (BB) stands a good chance of making it through the near term. After all, the technology company based in Waterloo, Ont., has relatively little debt and a comparably large pile of cash. Its current assets exceeded its total liabilities by almost $1.5-billion (U.S.) at the end of August. In addition, the firm generated a positive cash flow from operations over the prior 12 months and lost a relatively paltry $1-million over the same period.
Don't get me wrong, BlackBerry's business isn't in great shape and analysts expect the firm to continue to lose money over the next few years. But it has the luxury of time to gather itself up, find a niche that works, and start trudging back up what is admittedly a very high hill.
While it is hard to imagine a scenario where BlackBerry's stock exceeds its former highs any time soon, getting part of the way there is a possibility.
Naturally, if the firm can't find its footing, it runs the risk of eventually joining other Canadian technology giants in the corporate graveyard or, more likely, being sold for a song to another firm. I don't think it will come to that, but it is a possibility.
I have to admit that I'm less enthusiastic about the other stocks on the list. While I have been eyeing a few firms – like Teck Resources (TCK.B) – for purchase during this year's tax-loss selling season, my natural aversion to catching falling knives argues for patience.
Instead, I'll probably wait for them to dust themselves off and start climbing before I hitch my toboggan to them.