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11 Worst-Run Companies of 2011

MILLBURN, N.J. (Stockpickr) -- Since 2006, I have published an annual list of the worst-managed publicly traded companies. Every year, I re-evaluate the list, putting those companies whose management has improved on parole and inducting new members in their place. Over the years, the companies on this list have made excellent short-sale candidates, with some continuing down their poorly run path to bankruptcy as others manage to get their acts together.

Each company on my list displays one or more of the following characteristics of poor management.

  1. Poor Financial Condition: Heavy debt loads, large amounts of goodwill and poor cash flow are common among poorly run companies. As a result, their balance sheets are in lousy shape. The inability to shore up balance sheets could spell further danger in the future.
  2. Second Banana Syndrome: Some of the companies on my list are not what would you refer to as "best of breed." Most of them are in an industry or sector that has at least one more-dominant competitor. After all, why swill beer when you can sip champagne?
  3. Ineffective Management: Successful companies will have management teams that not only innovate but also can perform during times of stress. Innovation does not mean simply introducing a single "cool" product, as Sharper Image did with the Ionic Breeze Air Purifier. Effective innovation and management are about being able to transform a company into a provider of a well-balanced and diversified line of products.
  4. Disastrous Strategic Acquisitions: Many companies try to grow by developing a successful acquisition strategy. Many cause more harm than good by doing so. Do you remember the ill-fated acquisition of the old America Online by Time Warner (TWX)?
  5. Failure to deliver value to shareholders: The bottom line remains the same good management teams deliver dividends and share price appreciation to shareholders. Bad management delivers coals in stockings.

First, let's review the roster of my list of worst-run companies from years past and see how they've fared lately.

>>5 Scary Stocks to Sell Now

Class of 2006

Alcoa (AA): Alcoa remains on my list. Alcoa and its management team continue their traditional mismanagement of shareholders' wealth. Yes, earnings should improve nearly 60% in 2011 over the prior year, but in the last year Alcoa stock has slid 9% while the S&P 500 rose about 9% on a price basis. Next year, the company is expected to increase earnings by 22%. Can this management team finally deliver to shareholders? I remain skeptical, but even a blind squirrel can find a nut every once in a while.

For another take on Alcoa, check out "5 Breakout Stocks to Leverage the Rally."

Alcatel-Lucent (ALU): Alcatel is still on my list. This company should return to profitability for the first time since 2006. That is no consolation to shareholders, who have watched their stock value decline nearly 19% in the last year. This once leading-edge technology company is finding itself bringing up the rear these past few years and struggles to catch up.

Cablevision (CVC): Cablevision remains on my list. The Dolan family continues to live large on Cablevision. Concurrently, shareholders suffer, with the stock falling close to 21% in the past year. That includes the spinoff AMC Networks (AMCX), which, believe me, was no great benefit to shareholders. AMC has also fallen since its spinoff on June 30. By the way, everyone I know who has Cablevision as a service provider hates it. That does not surprise me one iota.

Not everyone agrees with me. Cablevision, one of the highest-yielding media stocks, shows up in the portfolios of Daniel Loeb's Third Point and Chase Coleman's Tiger Global Management as of the most recently reported period.

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