I took a look last week at five stocks that should bounce back next year after a brutal 2012.
Now I'm going to sift through the landfill of 2012's losers to pick out five stocks that deserve to stay there. The market may have mistreated many of these companies, but there are limited catalysts to turn things around in 2013.
Let's dive right in.
RadioShack (RSHCQ): Off 79% in 2012.
Selling small consumer electronics in a small-box strip-mall setting seemed like a winning formula several years ago, but it's pretty pointless these days.
RadioShack decided to transform itself into a hub for wireless phones, but that has also introduced an unwelcome margin crunch. RadioShack has now posted three straight sharp quarterly deficits, and analysts see more of the same for the seasonally potent holiday quarter.
In fact, Wall Street doesn't see an annual profit out of RadioShack until 2016 at the earliest, and there's little reason to believe that it will even be around by then.
Apollo Group (APOL): Off 63% in 2012.
One of the more resilient niches during the early stages of the recession was for-profit post-secondary educators. Online curricula to retool the unemployed and underemployed were hot, and the University of Phoenix parent led the way.
The public isn't as excited about Apollo and its peers these days. The questionable effectiveness of online degree programs, crummy student loan repayment rates, and Apollo coming under fire for its own aggressive marketing tactics have turned Mr. Market's teacher's pet into a dunce.
University of Phoenix enrollment levels have declined 14% over the past year, and it's hard to fathom what would reverse that trend.
Advanced Micro Devices (AMD -0.24%): Off 57% in 2012.
I have an inherent instinct to root for the underdog, so I have routinely cheered on AMD as the spunky company that's always given Intel (INTC 1.23%) a run for its money when it comes to microprocessors.
The problem these days is that folks are moving away from the desktops and laptops that put AMD on the map, and it hasn't been as successful in transitioning to the booming smartphone and tablet markets of today.
The outlook isn't every encouraging. AMD will post a loss this year, and analysts see the deficit widening next year. We're talking about a company where revenue is declining at a double-digit pace.
Analysts can't seem to get pessimistic fast enough. The pros have badly overestimated AMD's bottom line in each of its two previous quarters. These same analysts don't see a return to profitability until 2015, but will AMD hold out that long?
Best Buy (BBY -1.31%): Off 45% in 2012.
Anyone in a retro mood can slip into Best Buy to get a feel for what the last few days of Circuit City must have felt like.
The consumer electronics superstore is struggling, and there's little that can reverse the trend. All of the CDs, DVDs, books, video games, and software that it sells are going digital. Best Buy should know: It's selling the smartphones and tablets that make the digital revolution possible.
Then you have all of the big-ticket hardware that can be had for less online.
If Best Buy is around in a few years it will be with fewer, smaller stores.
Bulls will argue that its founder was open to taking the company private at twice today's price this past summer. Unfortunately, Best Buy's board decided that it would be more prudent to overpay a foreign CEO who needed to obtain a work visa just to oversee this sinking ship.
After earning $3.39 a share in its last fiscal year, Best Buy is on pace to ring up $2.46 a share this year and $2.15 a share next year. Don't place too much faith in those numbers to arrive at a compelling valuation with a forward earnings multiple in the mid-single digits. Wall Street has been shaving down its forecasts with every passing quarter and they have come up short in the two most recent periods.
Pitney Bowes (PBI -0.24%): Off 41% in 2012.
Investors buying into Pitney Bowes know that the meter is ticking on the leading metered-mail provider.
Companies just aren't mailing stuff the way that they used to, and it's showing. Pitney Bowes earned $2.35 a share last year, and it's on track to earn just $1.99 a share this year. Analysts see the postage meter company earning only $1.89 a share next year.
There is little reason to expect that trend to end.
Earlier this month it did bring on an IBM (IBM 0.20%) executive to be its new CEO. Pitney Bowes has already tried to expand into enterprise solutions, but the same can be said of just about everybody these days. It's too little, too late at this point.
Yield chasers are drawn to Pitney Bowes' juicy payout. The company has been raising its dividend even as its fundamentals and share price are eroding. The result is a current yield of 13.5%, but what good is a 13.5% yield when the stock has given back more than three times that amount over the past year?
