Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks I'd Hate to Buy

By Anders Bylund - Jun 23, 2017 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This Fool wouldn't touch these stocks with a 10-foot laser pointer, for fear that they would just fall apart.

There are some stocks you couldn't persuade me to buy if they were the last tickers on the market. They are headed toward extinction-level events and are hardly worth the electrons their digital stock certificates are printed on.

For me, that list includes fading retailer Sears Holdings (SHLDQ), near-forgotten smartphone veteran BlackBerry (BB 0.59%), and regional telecom Frontier Communications (FTR). Your list of blackball stocks may be different; read on to see why I'm staying away from these tickers.

A businessman takes a Jenga piece out of a shaky tower.

Image source: Getty Images.

How to burn cash and alienate investors

Frontier Communications has a habit of picking up the landline and FiOS operations that Verizon Communications (VZ 0.83%) doesn't want to deal with anymore. Two large Verizon deals in 2010 and 2016 have more than quintupled Frontier's annual sales in seven years, yet they didn't help Frontier's earnings or free cash flows at all.

Furthermore, the company's debt balances rose from $4.8 billion to $17.9 billion and annual interest expenses quadrupled to $1.5 billion. Lacking the large cash flows you'd expect from a mature telecom company, Frontier is cutting its dividend to help finance the debt-servicing costs.

And management has not shown much concern for long-term shareholders, either -- the Verizon deals involved both new debt and a massive load of new Frontier shares going into the hands of Verizon's owners. Share prices have reacted as one might expect under this campaign of creative value destruction:

FTR Chart

FTR data by YCharts

This is not a turnaround story just waiting to be told. It's a long, slow death march under the yoke of expensive and unprofitable wireline operations. I suppose the FiOS portion of Frontier's Verizon transactions could have worked out, since high-speed internet connections have worked wonders for other cable and telecom operators in recent years. But even there, Frontier is losing customers quarter by quarter and data service revenue keeps falling.

I don't see a happy ending to Frontier's gloomy story. Not now, not in 10 years, not until the company completely shakes up its business model to come up with something that works. Failing that, this stock is going to zero in the long run.

No more "CrackBerry" addictions

Once upon a time, BlackBerry was synonymous with "smartphones." High-quality physical keyboards made the company's devices a joy to use for secure text messaging and basic web browsing.

Then Apple and the Android gang showed up with their sleek touchscreens and massive app stores. The smartphone game changed overnight, and BlackBerry never managed to find a foothold in the new market.

This chart speaks volumes of BlackBerry's fading fortunes:

BBRY Chart

BBRY data by YCharts

BlackBerry CEO John Chen is turning the former smartphone giant into a very different business. The Canadian company is now all about secure messaging apps and data security tools. Best of luck, but BlackBerry burned a ton of credibility years ago. Any success the company finds at this point must be built from scratch, not resurrected from the glory days.

This turnaround effort is a risky proposition, and it's easy enough to find better investments elsewhere. BlackBerry simply doesn't belong in my portfolio.

It's a long way down from Sears Tower (Oops, I mean Willis Tower)

Finally, I can't think of a single company more obviously headed to the scrap heap of history than Sears Holdings. The mall-based store chain started circling the drain long before Frontier or BlackBerry, and there's no going back:

SHLD Chart

SHLD data by YCharts

Kmart and Sears stores are closing their doors by the hundreds, the company is selling off real estate assets and household-name product brands to stay afloat, and billionaire CEO Eddie Lampert was forced to prop the balance sheet up with cash from his own pockets, since banks are no longer interested in doing business with Sears.

I don't even have to aim my laser pointer at Sears to see it crumble. This company is falling apart on its own, and I don't want anything to do with it.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Verizon Communications. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
BlackBerry Stock Quote
$6.78 (0.59%) $0.04
Frontier Communications Corporation Stock Quote
Frontier Communications Corporation
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$45.15 (0.83%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.