Triage, Part 3 (Final)

Here are parts one and two of this series.  Rather than give a detailed list of what is right with my portfolio, I left the companies that were least likely to have problems for last.  The entire portfolio is over at Stockpickr.  What I will go through here are the potential trouble spots.

The Dead

Deerfield Triarc

Bad Shape 

  • Jones Apparel
  • YRC Worldwide

Questionable

  • Deutsche Bank
  • Royal Bank of Scotland
  • Sara Lee
  • Gruma
  • Tsakos Energy Navigation
  • Cemex

Barclays plc has already been sold, as have the two auto dealers.  Deerfield is too cheap to sell, and I expect that they will not be able to complete their merger, which doesn’t harm Deerfield much, or help them much.  Conditions in the
bank debt markets aren’t too cooperative now, and I would expect that there won’t be too many CDOs done in the next two years.

Bad shape: As for Jones Apparel, a lot depends on what they do with the cash from the sale of Barney’s.  Personally, I would use it to reduce debt; if they use it to buy back stock, I will be one of the people selling the stock to them.  YRC Worldwide is a cyclical company with more debt than I would like; trucking stocks have been weak so I might sell into a rally, or do a swap for a less levered company.

Questionable: None of these balance sheets are in great shape, but aside from the banks, their underlying businesses are likely stable enough to bear the strain.  As for the banks, do they really have enough capital to survive through a real crisis?  Probably, if only because they are “too big to fail.”  Governments will take action to protect their existence, though not necessarily the interests of the current equityholders.  That said, I am a little encouraged by Deutsche Bank’s relatively good positioning in this crisis so far, and the CEO’s willingness to encourage transparency.

So, for now, on rallies, I may be lightening some of the above names.  I am in no rush at present, and will take my time in adjusting the portfolio.

Full disclosure: long DB RBSPF SLE GMK TNP CX YRCW JNY DFR

Additional tickers mentioned: BCS