Are These 3 Companies Doomed?

Are the doomsday predictions about J.C. Penney, Best Buy and Barnes & Noble wrong?

Apr 23, 2014 at 6:01PM

I often see stories with titles like "10 Companies That Won't Be Around in 10 years." The list usually includes companies with well-known struggles such as J.C. Penney (NYSE:JCP), Best Buy (NYSE:BBY), and Barnes & Noble (NYSE:BKS). While each faces some challenges, should we really put them on deathwatch? Let's take a closer look at these struggling companies.


They might be right
In preparing for this article, I visited my local JCPenney. I cannot accurately say how long it has been since I'd last been inside one, but I do know it was several years. If I'm at all representative of a typical JCPenney shopper, then I guess we know its main problem.

This, however, is but one issue on a lengthy list of very public problems. A few months ago, it appeared that this company was headed for certain doom: Management disasters related to former CEO Ron Johnson and new pricing methods, its exit from the outmoded catalog business, large layoffs, and  battles with activist investor Bill Ackman.

Lately, J.C. Penney's share price has been all over the place. This year alone, it has climbed to over $9 and dove to below $5 just a month later. Currently, it is back near its January prices, but its financials tell a scary story. In 2010, it reported a net operating cash flow of $1.58 billion. For 2014, it was -$1.81 billion. Most analysts seem to rate the stock a hold, but I don't know that I agree. At this point, I have to wonder how much more bad news this company can withstand. The doomsday prognosticators may be right on this one. At any rate, I wouldn't consider adding it to my portfolio.

Maybe, maybe not
Best Buy is often picked as a company that may not survive much longer and "showrooming" has often been cited as the reason why. Sure, this is a problem for all retailers, but this is not Best Buy's only challenge. It faces a familiar foe: competition. Office supply superstores like Office Depot offer many of the same products and even electronics repair services similar to Best Buy's Geek Squad. And when it comes to appliances, most shoppers think of Home Depot, Lowe's, or even Sears before visiting their local Best Buy. Mine has several appliances sitting out on its sidewalk. While it looks a bit odd, I suppose it reminds passersby that they sell them.

Best Buy may be facing some challenges right now, but its demise isn't necessarily a guarantee. Just a few years ago, home furnishings retailer Pier 1 Imports faced near-extinction as well. At one point, it had suffered 16 consecutive quarters of declining same-store sales. By late 2007, Pier 1 had become a penny stock, trading as low as 11 cents a share in 2009. But Pier 1 avoided bankruptcy and battled back, cutting overhead and attacking its debt, selling off assets and even buying back its own debt for pennies on the dollar. Today, Pier 1 is trading well above $18 , same-store sales continue to rise, and it recently reported a gross profit of $746 million. This proves that even in the volatile retail industry, turnarounds can happen. If Best Buy can take control of its struggles, it could come back stronger than ever.

The one they're wrong about
If you've read my previous article on B&N, then you know I am far from being bullish on B&N. However, that doesn't mean I think it's doomed. I still think it suffers from some management issues, but the company has a lot going for it. Its stock is currently trading around $20, a price it seems to frequently return to no matter how far it dives . B&N's net income is also on the rise, climbing from -$6.06 million to $63.23 million year over year. However, not everything looks good about this book retailer. It is currently operating with negative margins and no analysts are calling it a buy. The consensus is to hold B&N if you have it.

Still, many of us love books and bookstores. While B&N has certainly struggled to find the balance between being a brick-and-mortar retailer and a digital content provider, it has outlived its physical competitors -- namely the now defunct Borders -- and it has kept pace with the likes of and Apple in the still-growing e-book market. However, Nook has also dragged B&N down, causing the company to lose over a billion dollars and forcing management to look for a buyer for its e-book business. If B&N can get out from under the debt caused by Nook, it should be in a good position to have a successful turnaround. Much like Pier 1, if B&N can shed its financial burdens and find its way back to its retail core, B&N's stores should be around for quite some time.  

The bottom line
Indeed, all three of these companies are facing some challenges, and if you're holding shares of any of them, you're likely in store for a bumpy ride in the short term. However, in the long run, it may not all be doom and gloom. All three have weathered storms in the past and, with some good leadership, they should be able to weather current storms. That said, it would seem that anyone looking to buy into any of these rocky companies would be placing a pretty big bet.

Will you shop with plastic in the future?
While these companies' futures hang in the balance, one thing is certain: the plastic in your wallet is about to go the way of the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Ryan Lowery has no position in any stocks mentioned. The Motley Fool owns shares of Barnes & Noble. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers