The house rules are simple in this weekly column.

I bash a stock that I think is heading lower. I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, Logitech (Nasdaq: LOGI).

This is not my beautiful mouse
Merrill Lynch analyst Jonathan Tseng downgraded shares of Logitech yesterday, slashing his price target from $9.80 to $7.30. He feels that guidance is too high for a company that is still several quarters away from the product portfolio refresh that will be necessary if the accessory maker is serious about mounting a turnaround.

I'm even less optimistic.

I've been a big fan of Logitech in the past. From my LX3 optical mouse to my Pro 9000 webcam, I'm a customer.

Unfortunately, I'm also a dinosaur. Logitech's bread-and-butter PC accessories are fading in relevance. Logitech's wireless mouse has no future in a world where touchscreen tablets, smartphones, and now even PCs are taking over. Most tablets and laptops now come with quality built-in webcams.

PC and laptop shipments have declined in the U.S. for back-to-back quarters to start off the year, and that trend isn't going to improve. Logitech's making tablet accessories, but it's not a market leader there the way it has been for traditional computing.

When Logitech has tried to think outside of the PC box, its gambles haven't exactly paid off. Its Revue smart television box has been a dud. Its Squeezebox Wi-Fi radio doesn't seem so necessary in the smartphone age that we live in.

Analysts aren't impressed. They see Logitech earning $0.41 a share on flat revenue for its fiscal year ending in March. Logitech earned $0.72 a share last year. Bulls will argue that Wall Street is being overly pessimistic, but it's actually been the exact opposite. Analysts have actually overestimated Logitech's bottom-line performance in each of the past three quarters -- including a surprising deficit in its most recent report.

The reinvention process won't be easy. Logitech has to drum up products for the "good enough" computing gadgets that don't require the peripherals of the past. Anyone that approaches Logitech in the single digits now as a bargain is probably too enamored with its past to take an unbiased look at its future.

The Logitech that longs know and love doesn't live here anymore.

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. Let's go over the three fill-ins.

  • ZAGG (Nasdaq: ZAGG): The popularity of smartphones, tablets, and e-readers hasn't meant an end to third-party accessory providers. ZAGG has carved out a cozy living, largely through its protective-film screen covers. Revenue soared 158% in its latest quarter, and adjusted earnings also more than doubled. ZAGG also bumped its guidance higher for the balance of the year -- something that will likely never happen again at Logitech.
  • Apple (Nasdaq: AAPL): Life without Apple would have been a lot easier for Logitech, since the Cupertino tech giant's iPhone and iPad are the very reasons why Logitech's products just aren't selling at the margins that they used to.
  • Google (Nasdaq: GOOG): Google TV was a bad bet for Logitech and last year's Revue box. Several price cuts later, it's still not selling well. The rookie failings of Google TV also roughed up chip partner Intel (Nasdaq: INTC) and television maker Sony (NYSE: SNE). The best-looking company out of the Google TV fiasco is -- oddly enough -- Google. Folks continue to rely on Big G as the global leader in search, and advertisers know that. Google was able to grow through the recession, and its web-centric business means that it's not going to be left behind the way Logitech is because folks are going online in new ways. Google is also cheap, trading for 15 times this year's earnings and less than 13 times next year's profit target.

I'm sorry, Logitech. This call is all about logic and tech.

The Motley Fool owns shares of Apple, Intel, Logitech International, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Logitech International, Intel, and Google. Motley Fool newsletter services have also recommended creating a diagonal call position in Intel, a write covered call position in Logitech International, and a bull call spread position in Apple. 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.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.