See if anyone is suing

A few years ago, no one even considered judicial risk when evaluating an investment. Then U.S. juries began handing out huge damage settlements that sent companies reeling. The tobacco industry was the hardest hit, but even companies that no one would have thought were vulnerable got rocked. One example was Vancouver-based Loewen Group, a firm in the low-profile funeral business. Its shares were socked after a southern jury found in favour of the plaintiff in a suit against the company and awarded a huge settlement.

The defense here? Do some research before placing a stock order. Major legal actions against a public company do have to be acknowledged in the annual report. Check there to see if there are any outstanding. The company will probably claim they are without merit, but use your own judgment or discuss the matter with a financial advisor.