December 23, 2010
If Santa Claus had the spare time to dabble in investing, he might consider leaving the following stocks in naughty kids' stockings in lieu of lumps of coal:
- Talbots: The boomers are going bust, and stocks that target that demographic have a difficult battle ahead. Talbots still faces an uphill battle to get customers back in the door. Last quarter's nasty tidings about holiday sales suggest that pessimism is still warranted here.
- SUPERVALU (NYSE: SVU ) : Great Atlantic & Pacific recently filed for bankruptcy, illustrating how difficult the grocery industry has become for weak players. SUPERVALU has formidable competition in that space, and is most certainly not a stronger contender, given rotten earnings and sales.
- BP (NYSE: BP ) : BP gave us some of the most shameful moments in 2010. Although Tony Hayward, with his terminal case of foot-in-mouth disease, is no longer at the helm, a company that showed such disgraceful crisis management has some serious problems to address. The lawsuit the U.S. government has filed against BP for disregarding safety regulations when it drilled the blown-out well that sullied the Gulf of Mexico can't be good news, either.
- Crocs (Nasdaq: CROX ) : Crocs may have escaped the endangered list after its major difficulties several years ago, but this year's 230% increase in Crocs' stock price means that investors may be cruisin' for a bruisin' again. Is Crocs' fashion sense and expected growth really worth paying 32 times trailing earnings? I think not. Perhaps some investors never learn.
- Wendy's/Arby's (NYSE: WEN ) : There's a leader in the fast-food space, and Wendy's/Arby's ain't it. Its failure to turn in the last 12 months doesn't foretell an appetizing future, either.
- Sears Holdings (Nasdaq: SHLD ) : Too many discount retailers outclass Sears Holdings by a long shot now, and it's not high on the list of places consumers think to frequent when they're out bargain-hunting. As for the increasingly unlikely "real estate play" argument, frankly, I'd sooner believe in Santa Claus.
- Sirius XM (Nasdaq: SIRI ) : Technology marches on, and Sirius XM's technology was cutting-edge a decade ago. These days, consumers have a ton of options for their media consumption, and "satrad" just isn't as rad as it used to be. Sirius never has proven this can be a consistently profitable model, even with four quarters of trailing earnings notwithstanding. And it's still got way too much debt, folks.
- RadioShack (NYSE: RSH ) : One of the most exciting moments for "The Shack" in the last year was the idle rumor that somebody might acquire it. My question: What kind of sicko actually would?
- J.C. Penney: Like the aforementioned Sears, J.C. Penney's just not top of mind for bargain-hunting shoppers anymore. It hasn't reported an annual increase in sales since the year ended February 2007. Investors ought to run to stronger rivals' shares.
- Gannett: The newspaper industry's got serious problems, given readers' steady conversion to Internet news sources. However, Gannett's also got major national competition from the likes of The Wall Street Journal and The New York Times, and its debt-to-capital ratio of 51.6% sounds dangerous given its consistently falling revenue.
- Warner Music Group: Falling sales, operating losses, and a debt-to-capital ratio of 112.2% all sound sour notes. The future seems to point to increasing losses for old-school media dinosaurs like this one, unless they start to innovate.
Those are my ideas for 11 lumps of coal investors should hope to avoid as 2010 draws to a close. Do you agree? What stock do you think is a lump of coal? Leave your thoughts in the comments box below.