Throw This Stock Away

The house rules are simple in this weekly column.

I bash a stock that I think is heading lower. I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, Logitech (Nasdaq: LOGI  ) .

This is not my beautiful mouse
Merrill Lynch analyst Jonathan Tseng downgraded shares of Logitech yesterday, slashing his price target from $9.80 to $7.30. He feels that guidance is too high for a company that is still several quarters away from the product portfolio refresh that will be necessary if the accessory maker is serious about mounting a turnaround.

I'm even less optimistic.

I've been a big fan of Logitech in the past. From my LX3 optical mouse to my Pro 9000 webcam, I'm a customer.

Unfortunately, I'm also a dinosaur. Logitech's bread-and-butter PC accessories are fading in relevance. Logitech's wireless mouse has no future in a world where touchscreen tablets, smartphones, and now even PCs are taking over. Most tablets and laptops now come with quality built-in webcams.

PC and laptop shipments have declined in the U.S. for back-to-back quarters to start off the year, and that trend isn't going to improve. Logitech's making tablet accessories, but it's not a market leader there the way it has been for traditional computing.

When Logitech has tried to think outside of the PC box, its gambles haven't exactly paid off. Its Revue smart television box has been a dud. Its Squeezebox Wi-Fi radio doesn't seem so necessary in the smartphone age that we live in.

Analysts aren't impressed. They see Logitech earning $0.41 a share on flat revenue for its fiscal year ending in March. Logitech earned $0.72 a share last year. Bulls will argue that Wall Street is being overly pessimistic, but it's actually been the exact opposite. Analysts have actually overestimated Logitech's bottom-line performance in each of the past three quarters -- including a surprising deficit in its most recent report.

The reinvention process won't be easy. Logitech has to drum up products for the "good enough" computing gadgets that don't require the peripherals of the past. Anyone that approaches Logitech in the single digits now as a bargain is probably too enamored with its past to take an unbiased look at its future.

The Logitech that longs know and love doesn't live here anymore.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • ZAGG (Nasdaq: ZAGG  ) : The popularity of smartphones, tablets, and e-readers hasn't meant an end to third-party accessory providers. ZAGG has carved out a cozy living, largely through its protective-film screen covers. Revenue soared 158% in its latest quarter, and adjusted earnings also more than doubled. ZAGG also bumped its guidance higher for the balance of the year -- something that will likely never happen again at Logitech.
  • Apple (Nasdaq: AAPL  ) : Life without Apple would have been a lot easier for Logitech, since the Cupertino tech giant's iPhone and iPad are the very reasons why Logitech's products just aren't selling at the margins that they used to.
  • Google (Nasdaq: GOOG  ) : Google TV was a bad bet for Logitech and last year's Revue box. Several price cuts later, it's still not selling well. The rookie failings of Google TV also roughed up chip partner Intel (Nasdaq: INTC  ) and television maker Sony (NYSE: SNE  ) . The best-looking company out of the Google TV fiasco is -- oddly enough -- Google. Folks continue to rely on Big G as the global leader in search, and advertisers know that. Google was able to grow through the recession, and its web-centric business means that it's not going to be left behind the way Logitech is because folks are going online in new ways. Google is also cheap, trading for 15 times this year's earnings and less than 13 times next year's profit target.

I'm sorry, Logitech. This call is all about logic and tech.

The Motley Fool owns shares of Apple, Intel, Logitech International, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Logitech International, Intel, and Google. Motley Fool newsletter services have also recommended creating a diagonal call position in Intel, a write covered call position in Logitech International, and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (11) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On October 11, 2011, at 2:06 PM, FoolishWare wrote:

    Rick,

    I am curious to what has changed since September when you recommended throwing Apple away:

    http://www.fool.com/investing/general/2011/09/01/throw-this-...

    Now, Apple is one of the recommended alternatives. I am long on Apple and thought the previous recommendation was off the mark. What changed your mind about Apple?

    Andrew

  • Report this Comment On October 11, 2011, at 2:08 PM, khaledmrd wrote:

    I think analyst should have more induction about what inside and outside the box

    inside the Box

    -------------

    PC is growing Globally, while Tablets will not replace PC as it is an extra gadget

    Logitech in 2011:

    1-Mac line-up 2-B2B Division and new PC push 1st time ever for Business 3-PC Emerging markets push like in China and India and other countries.

    outside the Box

    -----------------

    1- Google TV Right off is ONE time charge, but Google TV 2nd edition (expected in few weeks) could be the future of smart TV for Logitech put the accessories standards with Google, as part of new Digital Home (Smart TV the next big thing after PC)

    2- LifeSize Unified Communication Global push and growth

    3-LifeSize New Dynamic Cloud based Service(expected October) not just Video Communication, but Audio, IM and Data collaboration

    4-Logitech new Business division in 2011 that will go after business as they were a consumer focused company

    5-Logitech after Music, Wireless and streamed within the bigger picture of Logitech announced Digital home strategy so keep tuned

  • Report this Comment On October 11, 2011, at 2:15 PM, khaledmrd wrote:

    i forget, Logitech has NOW a great line-up for tablets, check logitech site

    Also many will be a surprise which leaked on some online stores, my favorite will be an unannounced Logitech Mini Boombox for Smartphones, Tablets and Laptops - Black and Red versions

    "Doubles as a speakerphone: Built-in mic for crystal clear, hands-free calls from your Bluetooth wireless mobile devices"

  • Report this Comment On October 11, 2011, at 4:59 PM, VolkOseba wrote:

    I'll keep it, thanks.

  • Report this Comment On October 11, 2011, at 11:15 PM, jacobandersen72 wrote:

    I feel like all these guys are missing the point.

    when you buy a tablet you are buying an extra device

    you still need a PC

    i cant use my phone to read articles

    i cant use my tablet to write documents

    i like keyboards

    i need a mouse

    i really need a mouse

    logitech sells great stuff and will continue to do so

    logitech had a writedown due to google tv of $40 million -- otherwise it would be up $40 milllion more on earnings

    the logitech, lifesize division, alone is worth $1 billion dollars

    when does this writer want people to buy -- when its high? when its too late.

    i guess that is why most analysts dont know what they are doing.

    yes I own LOGI and I am UP on it.

    I am holding for $20

  • Report this Comment On October 11, 2011, at 11:20 PM, jacobandersen72 wrote:

    how about CHINA?

    this year china will buy more PCs than anyone.

    how come the writer didnt mention that?

    how about INDIA?

    how about mentioning that Logitech distributes ZAGGS products and takes a nice cut

    hey writer -- have you tried using a tablet without a wireless mouse -- it sucks ! you need a mouse. I think logitech is growing in relevance. soon every TV will need a keyboard and mouse too.

    they used to say the same thing about NOTEBOOKS -- they would say notebooks and laptops dont need a mouse because they have one built in. and guess what -- we all bought mouses for our notebooks and laptops.

    as for Google TV. Version 2 and 3 and 4 will eventually work. your TV is gonna have apps. its gonna need accessories. its gonna need a moveable webcam. not one just focused on the users face like those included in laptops.

    throw this analyst away !

  • Report this Comment On October 12, 2011, at 12:49 PM, investingNideas wrote:

    ZAGG does more then just protective-film screen covers and I write to them all the time trying to get new products to market. ZaggFolio is a good start and LOGI sells Zagg products.

    Sign this petition for a subpoena-empowered, criminal investigation of the events of Sept. 11, 2001 are needed by October 28, 2011

    https://wwws.whitehouse.gov/petitions/!/petition/launch-real... al-investigation-events-sept-11-2001/w9XBvTJY

    Shortlink: http://wh.gov/4yp

  • Report this Comment On October 12, 2011, at 5:28 PM, khaledmrd wrote:

    Google TV director, Google TV 2.0 will have 1000+ Apps overnight

    http://gnarld.com/gtv-director-gives-google-tv-3-1-honeycomb...

    Also Android market search "Google TV"

  • Report this Comment On October 12, 2011, at 6:05 PM, khaledmrd wrote:

    http://translate.google.com/translate?hl=en&sl=auto&...

    Link shows Logitech pushing new, tailored & beyond PC

  • Report this Comment On October 12, 2011, at 8:25 PM, TMFBreakerRick wrote:

    Andrew, it's all relative.

    I am still skpetical about Apple, but I see it as a better portfolio replacement than Logitech at this point.

    If a month from now I use this weekly column to dig into a stock that I think will fall harder than Logitech, I would have no problem using LOGI as one of the three replacements (though that would be very unlikely at this point).

    I appreciate all of the others posting bullish Logitech comments. This column is supposed to bring that out in people, and I enjoy the feedback.

  • Report this Comment On October 12, 2011, at 9:42 PM, jacobandersen72 wrote:

    TODAY'S NEWS CAME OUT SAYING PC SALES ARE STILL GROWING NICELY

    HORRAY FOR PCs !!!!!!

    RICK YOU NEED TO GET BETTER DATA BEFORE YOU WRITE YOUR REPORTS

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