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 (WIN +0.00%) 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 (HGG +0.00%). 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 (PBI +1.43%), 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 (RSH +0.00%), 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.
