by Jeff Reeves | December 22, 2011 4:00 am
We saw a number of big names crash and burn in 2011 — most recently with American Airlines parent AMR Corp. (NYSE:AMR) declaring bankruptcy and MF Global flaming out spectacularly thanks to what appears to be boneheaded (and illegal) trading with client money. And you can be sure that in 2012, plenty of other companies will make headlines like these as their operations fall apart and they spiral into bankruptcy or are broken up and sold at fire-sale prices.
Investors sometimes like to bottom-fish for winners on the hopes they will bounce back big-time. Others are just afraid to part with a big loser — even if that means it becomes an even bigger loser down the road.
But take note: These five stocks are toxic to your portfolio, and could very well disappear altogether in 2012:
Aging stores, fallen flagship brands and overall poor sales have plagued Sears Holdings (NASDAQ:SHLD) for some time. Things are only going to get worse in 2012, however.
The company — which operates Kmart discount stores as well as its namesake Sears department stores — has lost money in five out of the past six quarters. Even worse: November marked a stunning 19 straight quarters of sales declines!
Many big retailers like Wal-Mart (NYSE:WMT) have struggled to find their way as consumers have cut back and are more savvy about getting the best deals. But Sears is in a class of its own when it comes to losing customers and losing money in the retail space.
Sales at the company have dropped every single year since hedge fund manager Edward Lampert and his cronies merged the company with Kmart in 2005. Lampert began focusing on online boondoggles such as an online marketplace in the vein of eBay (NASDAQ:EBAY) and allowing brick-and-mortar sales to wither and the once-respected store brands of Kenmore and Craftsman to lose relevance.
No wonder shares are off 35% year-to-date in 2011 and almost 60% from the 2010 peak of SHLD stock.
Sears doesn’t have the crippling debt load that drives companies directly into bankruptcy. But it’s certainly on its way.
There are plenty of reasons why Eastman Kodak (NYSE:EK) has suffered recently. A failure to adapt to digital photo trends during the past decade is a large part of that narrative, but there are other reasons too. Nearly constant reorganizations since the 1990s have left the company without direction and without much hope.
After losing money 12 of the past 15 quarters, it appears Kodak could be on its last legs. CEO Antonio Perez — who absurdly serves on President Barack Obama’s Council on Jobs and Competitiveness — denies bankruptcy claims seemingly every week since Kodak rattled Wall Street in late September with its corporate debt antics.
But as the old saying goes, “Who should we believe — you or our lying eyes?”
Kodak’s debt is a staggering 160% of the company’s current market capitalization. You can argue that it has been unfairly oversold — currently under $1 — so a pop in share price could roll that back considerably. But not enough to change the fact that the creditors are at the gate and Kodak is scrambling to fight them off in a credit market that is hostile even to fairly healthy companies.
As I said a month ago, America’s Kodak moment might be over forever.
Yahoo! (NASDAQ:YHOO) has been making headlines in 2011, but for all the wrong reasons. The biggest news, of course, came when Carol Bartz was unceremoniously fired — sparking a flurry of buyout speculation and prolonged snickers about the once-dominant media company’s fall from grace.
Some said in September that Yahoo could turn itself around under new leadership. And while the stock did leap about 50% from its August lows to a peak of almost $17 in October, the company’s earnings and revenue continue their slow backslide.
True, Yahoo isn’t like other companies on this list because it is profitable and likely could survive another decade on its own. But like fellow online media disaster AOL (NYSE:AOL), just because you’re dying a slow death doesn’t mean you can say you’re surviving. The death of Yahoo isn’t a question of “if” so much as “when.”
Yahoo has given up altogether on online search, plugging in the Bing algorithm from Microsoft (NASDAQ:MSFT) to run its search functionality. Its numbers are deteriorating rapidly. It is begging for a buyout — hopefully from a private company, to avoid those pesky shareholders.
It all adds up to YHOO stock being snapped up on the cheap and taken private in 2012 — or perhaps broken up and sold for parts. It’s not bankruptcy, but expect Yahoo to disappear next year all the same.
Wasn’t American Apparel (AMEX:APP) supposed to disappear in 2011? The once-trendy retailer was on everyone’s list of failures — but somehow averted bankruptcy with a new round of financing. But with APP stock relegated to the AMEX and trading under $1 per share, it appears American Apparel has delayed the execution but still faces the same grim sentence in the near future.
At its peak, American Apparel boasted about 260 stores, and racked up almost $560 million in revenue in 2009. Unfortunately, APP has lost money for seven straight quarters. The company has a microcap market size of just $70 million as of this writing — but a crippling debt load. It faces $91 million in long-term debt, $149 in total debt and some $267 million in total liabilities. Those are not pleasant numbers for a microcap stock that hasn’t turned a profit in two years.
Same-store sales have flattened, which means the firm isn’t bleeding out any faster. But the status quo is ugly, and something needs to change in a hurry for this stock to survive.
To top it off: Founder and CEO Dov Charney has been repeatedly under fire from former employees who claim sexual harassment. This stock is a disaster on all fronts and might not survive the coming year.
Office Depot (NYSE:ODP) has been stuck in a tailspin for some time, logging a 60% slide in 2011 and a gut-wrenching 95% drop since 2007 levels. Expect more of the same in the new year.
Office Depot’s revenue totaled $15.5 billion in fiscal 2007 and has steadily declined to about $11.5 billion for fiscal 2011. After seven straight quarterly losses in 2008 and 2009, the company managed to break even in 2010 — but is forecast to finish fiscal 2011 operating at a loss again.
The lack of business spending on office supplies is only part of the story. Rival Staples (NASDAQ:SPLS) is the No. 2 online retailer in the U.S. by many measures, second only to e-commerce king Amazon (NASDAQ:AMZN) and in front of gadget powerhouse Apple (NASDAQ:AAPL). Office Depot just doesn’t have the competitive advantage of Staples’ online business and can’t seem to turn a profit.
Big-box retail stores need to adapt or die in this digital age and tough retail environment. Office Depot is too far behind to be a worthwhile investment in the coming year.
Like Sears, ODP has thus far managed to keep its long-term debts to about a third of the company’s value — not a death blow by any stretch on Wall Street. But things are going to have to turn around in a hurry. Rival Office Max (NYSE:OMX) also has felt the burn, but is at least profitable.
Specialty retail serving office supplies doesn’t seem to have a lot of growth and has too many voices in the room. It’s a long shot — but Office Depot could bow out in 2012.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks. Check out InvestorPlace.com’s other looks back at 2011 and ahead to 2012 here.
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