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.
- 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.
- 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?
- 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.
- 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)?
- 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.