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Analysts Wave a Red Flag at These 5 Stocks

November 20, 1998|JOSH FRIEDMAN | TIMES STAFF WRITER

Somebody once said you could ask any stranger in Los Angeles, "How's the screenplay going?" and they would reply, "Oh, pretty good." Now, it seems you can ask any party-goer or checkout clerk for their stock picks and they'll rattle off their watch list.

But stocks to avoid--well, that's another matter.

The Value Line Investment Survey, a weekly publication that analyzes 1,700 stocks, has devised its own system for finding duds as well as winners: Its analysts comb through the fundamentals to rank equities from 1 (best) to 5 (worst) based on timeliness, or projected year-ahead performance.

There are no guarantees: Any poorly rated stock can shoot to the stratosphere just as any of the best-rated stocks can stumble.

But historically, stocks rated 1 and 2 outperform the broad market on average, while 3s roughly mimic it and the 4s and 5s fare worse.

The Times asked Steve Sanborn, Value Line's director of research, to sift through the 5s to give us his list of equities to avoid. These stocks carry the worst scores in the Value Line timeliness ranking system, and the publication also gives them poor ratings for safety and/or financial strength.

In other words, even die-hard bargain hunters should steer clear of these, Sanborn says:

* Apria Healthcare (ticker symbol: AHG): "Suffering from the federal government's new health-care reimbursement system," Sanborn says.

* Nova Care (NOV): "Also having trouble adapting to the new system."

* Samsonite (SAMC): "Recently went through a recapitalization, which increased debt and preferred shares outstanding; interest and dividend charges will restrict earnings for the next several years."

* Tultex (TTX): "Will report a deficit for the second year in a row in 1998, and the outlook for '99 is not clear; poor conditions in the fleece-apparel business are a major problem."

* Triton Energy (OIL): "Has gone through both a restructuring and management change and will probably continue to lose money through at least part of next year."

Most of these stocks have already come way down in price, and Value Line thinks they will continue to fare worse than the market in general. But don't take out any mortgages to sell them "short." "Any major changes in any of their industries could be positive," Sanborn concedes, though he stresses, "Value Line would like to see improvement before changing its position" on the stocks.

Josh Friedman can be reached by e-mail at josh.friedman@latimes.com.

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