There appears to be a lot zombie small/mid cap companies out there

With most indices holding within trading ranges and a lot of liquidity going into stocks you have to consider that from March lows 2009 there has been a substantial rebound.

The other day I looked (randomly) at a hand full of small/mid cap companies; from 'junior' miners, biotechs and tech development. I was quite shocked that despite the rise in all of their share prices these companies had nothing to show for it, in fact what I saw was businesses running on air. Ok, it was a ruff cross section, but when you hear some analysts say that the recently stock rallies are not backed with sound fundamentals. You just need to have a quick look at the market to see for your self, more so their earnings and risk.


P/E was non existent for some (they are not making money) and generally overstretched in various sectors connected to the share price. Interest cover ratio was frightening for the companies that I looked at, in most cases it was very negative. With a credit crunch No2 around the corner banks won't extend credit lines to zombies.

The overall earnings out look was negative. Yet all have gained by the recent stock rallies. So it must be ascertained that a reprieve was bought for these companies post stock market crash 2008 and 2009. Some equity raising in the current bull market via stock speculation (money from Federal Reserve/US government) and general speculation (valueless US dollar). Another aspect that caught my eye was long positions. Which was a worry when it appeared that long positions were responsible in supporting stocks prices but the overall volumes were thin. The other aspect is the bond and junk bond markets could be a precursor for a big dump in shares (particularly these small unprofitable businesses). If the is a huge bond/debt bubble looming and there could be a collapse in bond prices into 2010. These companies are history, banks won't lend and the market will pull out liquidity out of a lot of these stocks. For what I have seen (like I said it was a snapshot) regardless shows that there could be a lot of zombie companies that have been buoyed by the recent stock rallies.

There is a big unwind coming soon.