The No. 1 Stock to Avoid -- or Short -- in 2013

Earlier this week, I introduced Fools to five stocks I think they should avoid -- or even short --  in the upcoming year. Three of them are primarily electronics retailers, one is a rural telecom, and one is a business equipment specialist.

Read on to see which stock I'll be making a bearish call on in my All-Star CAPS profile for the entirety of 2013; find out why I'm making that move; and read all the way to the end to get a detailed report on my Big Short for 2013, prepared by one of our top analysts.

Eliminating these two companies was easy
I've been hammering  on rural telecom provider Windstream (NASDAQ: WIN  ) for some time now. The company provides broadband service to both residential and business customers in some of the less-populated areas of the U.S., and offers an 11.3% dividend to boot.

Though I'm not a huge fan of the underlying business at Windstream, the majority of my problems with it come from the company's unsustainable dividend. Over the first nine months of 2012, the company has paid out more in dividends than it has taken in in free cash flow. That's simply not sustainable.

But as fellow Fool Eric Bleeker has said in the past, if the company can start accumulating business customers, it could signal a turnaround for the company. I'm not saying I'm convinced that the turnaround will happen, but for the time being, I'm keeping my skin out of this game.

The second company I'll let off the hook for now is hhgregg (NYSE: HGG  ) . Don't get me wrong: I think rapid expansion of big-box stores is a recipe for disaster in today's evolving e-commerce market. But at least hhgregg has a relatively healthy balance sheet with no debt to help it eek out an existence for a little longer.

Who is the worst of these three?
That leaves us with Pitney Bowes (NYSE: PBI  ) , a company that made it's name in mail-metering products and offers up a 13.8% dividend yield that will soon be unsustainable; Best Buy (NYSE: BBY  ) which, like hhgregg, is becoming less relevant in the age of e-commerce, and has abandoned its excellent-customer-service roots; and RadioShack (NYSE: RSH  ) , the strip mall electronics store that many are surprised is still around.

One thing that both Pitney and Best Buy have working against them is the fact that they offer up dividends at a time when their companies have shrinking revenue bases. Pitney's free cash flow was cut by 50% just this year! And Best Buy has paid out in dividends more than twice what it's brought in from free cash flow in the past 12 months.

When those dividends are eventually cut, share prices will fall. RadioShack has already seen that happen, as it suspended its dividend earlier this year, falling almost 30% on the news.

Knowing that, you might think that Pitney or Best Buy would be a better choice for 2013's worst company to own -- but in my opinion, you'd be wrong.

At the very least, Pitney is trying to make forays into other areas, especially with its geocoding software.  And Best Buy pulled off a rather surprisingly successful Cyber Monday, with the company's website being the No. 3 most-often-visited for the gift-buying season behind Amazon.com and Wal-Mart.

RadioShack has already tried to diversify its business into being a hub for cellphones, smartphones and wireless plans. That hasn't worked out well for the company, as margins have taken a big hit. I just don't see the appeal here anymore. Even though the stock is down huge in 2012, it still has 100% to fall to get to zero, and that's why it's my choice for 2013's Big Short.

Some Fools disagree with me, and it's worth hearing them out. One of our analysts has compiled an in-depth premium report covering all of the opportunities, risks, and specifics that every investor should be aware of before deciding whether RadioShack is a buy or a sell. Simply click here now to claim your copy and start reading today.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 20, 2012, at 3:49 PM, pondee619 wrote:

    " it still has 100% to fall to get to zero". Don't they all? Name one stock that doesn't have 100% to fall to get to zero.

    So you are betting all of $2.36 a share that RSH will no longer exist by the end of the year? After a 75%+/- decline in the past year.

    "I'll be making a bearish call on in my All-Star CAPS profile for the entirety of 2013"

    Let us know when/if you are putting some REAL money behind this call. CAPS is a game, with NO consequence for being right or wrong.

  • Report this Comment On December 21, 2012, at 3:37 PM, cbglobal wrote:

    PItney Bowes does not make a commission on postage sales. Even if some businesses mail less, they are not going back to licking stamps. Junk mail is still going up. Check your mailbox for confirmation of that.

    Even if people cook less does not mean they are going to buy a house without a stove and microwave. Same here with mailing.

  • Report this Comment On January 10, 2013, at 7:58 PM, TruffelPig wrote:

    Great call. LOL. HGG up 10% today alone. I think many of the names you should have shorted long time ago - they are at the bottom already.

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