The house rules are simple in this weekly column:

  • I bash a stock that I think will head lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, RadioShack (NYSE: RSH).

Time to change the frequency?
This would seem like the worst time to criticize RadioShack. The stock hit a new 52-week low yesterday, as the small-box retailer warned that it would be retreating from its wireless kiosks inside Wal-Mart's (NYSE: WMT) Sam's Club stores. And it's down more today.

One analyst panned the 4,700-location consumer-electronics chain yesterday, largely on its latest margin-crunching move, but also partly over iPhone concerns. The iconic smartphone is finally coming to Verizon Wireless -- the one major carrier that RadioShack doesn't represent.

With everyone else piling on RadioShack, I hate to be the last one to growl bearish. In fairness, its fundamentals aren't all that cringe-worthy, either. Sales, comps, and earnings are climbing, while margins widen. Last year's couch-potato push for digital television converter boxes has been upgraded to tablet and smartphone sales.

However, it does bear pointing out that the stock did bottom out at a third of today's price nearly two years ago. Today's prices in the high teens seem considerably loftier relative to the company's fairly modest operations.

Furthermore, RadioShack's business model may be increasingly vulnerable. Consumer electronics isn't the slam-dunk that it used to be. Circuit City shorted out two years ago, and even Best Buy (NYSE: BBY) had a blue Christmas. Consumers are buying more stuff online, and carriers and handset makers are also getting better about marketing directly to their potential buyers.

As RadioShack hands back its 417 kiosks inside Sam's warehouse clubs, it's in the process of opening even more outlets inside Target (NYSE: TGT) stores. There may be a silver lining in the shift, but won't it simply be a matter of time before Target does what Wal-Mart has done, and cut out the middleman when it comes to wireless sales?

Analysts see revenue climbing 4% and earnings shooting 17% higher this new fiscal year. I don't agree. The same market trends that have been tripping up Best Buy will soon knock down RadioShack.

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.

  • Amazon.com (Nasdaq: AMZN): I brought up the leading online retailer as a replacement for Best Buy last month. Amazon scored a 39% pop in net sales during its third quarter, as sales in its electronics and other merchandise category soared by 68%. While a convenient RadioShack store is never too far away when someone needs fresh batteries or a USB cable, consumers are willing to wait a day or two for big-ticket items if the savings on Amazon are substantial. Welcome to the consumer-electronics quicksand, RadioShack.
  • Apple (Nasdaq: AAPL): The availability of Apple's iPhone through more than one carrier is bad news for Android and BlackBerry devices. Apple will likely gain market share, which could help widen its brand and move more iPads and Macs.
  • China Mobile (NYSE: CHL): If you want a pure mobile play, get out of the country. Carriers are about to slug it out, and that's usually not a good place to be for investors. Your best bet is to trek on over to the world's most populous nation and snag the leader there. China Mobile checked in with 579.6 million subscribers in November -- nearly double the entire population of the United States. Heated competition in China is keeping growth in check, but it's hard to bet against the long-term fundamentals of an improving economy. China's mobile subscribers will doubtlessly pay far more for their wireless in a few years than they do now.

I'm sorry, RadioShack. Your small box is about to get even smaller.