World Business

These well-known names in the bargain bin may look appealing, but experts make known to avoiding them until their earnings picture is clear

by dint of. Karyn McCormack

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Welcome to the 2008 third be stationed—and a big summer clearance sale onward Wall Street. Amid a vulgar stock market slump, many brand-name companies that we perceive in the same manner well, such as Ford (F) and Motorola (MOT), have been tossed in the $10-and-under funds bin.

But wait—there’s more. Other big names that are trading below $10 are Sprint Nextel (S), Washington Mutual (WM), Del Monte Foods (DLM), and manifold airlines including Northwest Airlines (NWA), UAL (UAUA), Delta (DAL), and JetBlue (JBLU). (For a list of more names beneath $10 behold the accompanying slide show.)

And person more illustrious name joined the single-digit list: General Motors (GM), what one. touched a 53-year reverent of 9.98 on July 2.

What’s the big distribute cards about base-minded stock prices? First, there’s a certain dishonor attached to a stock with a sub-$10 price—it’s a sign that a company faces swollen problems. Besides the blow to a body’s pride, there’s a more nettlesome issue: Some institutional investors won’t touch stocks that trade for less than $10, making it difficult to recover from those depths.

The used by all problem for most of these stocks: dismal or not one earnings vegetation. "The mart price of a stock is ultimately driven by earnings over the long term—that’s at what place you need to start," says Jim Huguet, president of money superintendent Great Companies in Tampa. "The reason they’re where they are is for the cause that of lack of earnings growth or earnings have declined, in some cases directly to the business or management."

A weak economy, or problems in a particular busy vigor or inside a company may be moreover hard to overcome, leaving a stock wallowing in the single out digits in the place of a long time. For example, the low-flying airlines face high fixed costs for planes and labor, plus the crush of soaring fuel prices, Huguet says. In this kind of commodity affair, very few companies be the subject of an advantage and are able to boost sales and earnings.

Some companies, such as Ford and Motorola, can invest too heavily in single customer strategy, leaving them unable to respond when customer requisition and needs modify, says Graham Hales, chief communications officer at brand consultant Interbrand. Ford focused on sport-utility vehicles and trucks for the time of a time of fuel price obscurity, environmental concerns, and a slew of cheaper, extraneous alternatives, he says. Motorola bet heavily on the RAZR wireless handset for five years.

"Both Motorola and Ford have failed to bring new products to their largest markets, North America and Europe, while competitors have luckily [eaten] away at their hegemony position through unaccustomed products and better brand management," Hales says.

In turn, Ford and Motorola were two of the biggest decliners in Interbrand’s most recent Best Global Brands ranking — losing 19% and 9% from their brand values, respectively. This shows that brand values are linked to stock prices, Hales says. Now both companies will have to figure out ways to reinvent themselves again to stay cheerful, says Michael Farr, president and chief investment officer of Farr, Miller & Washington in Washington, D.C.

One big brand that’s starting to show glimmers of hope is Sprint Nextel (S). Last week its shares jumped 13% on talk of a turnaround, despite weighty selling in the markets. Sprint, which venture a near the ground of 5.48 back in March, rose another 6%, to 9.50, on June 30.