There’s no better time to take a good, hard look at your portfolio than the beginning of a new year. I know this might not be your first rodeo, and chances are you’ve already done at least a little thinking about how your investments came through 2011, and what you’d like to achieve in 2012.
If not, there’s no time like the present.
Especially when it comes to something I call “Ditching the Dogs,” which is a variant of the well-known and very popular “Dogs of the Dow.” You’ve probably already guessed from the name that I’m talking about unloading those investments that have underperformed, or that are likely to hold your portfolio back in the next 12 months.
Obviously, this is a highly personal process and every investor is different, but here are five stocks I’d avoid like the plague right now (and the reasons why):
Long a bastion of American retailing success, I’ve been leery of Sears (NASDAQ:SHLD) for a long time. In fact, I’ve steered clear of it since hedge fund investor Eddie Lampert used more than a little financial wizardry to create Sears Holdings. At the time, his goal was to tap into the vast real estate empire underlying Sears and subsequently Kmart when that company emerged from bankruptcy and he snapped up shares — the stock hit $190 a share in early 2007 on the assumption that it would.
Now, though, it’s a very different story. With real estate in the toilet and the value of his “collateralized” debt circling the drain, he plans to fire employees, cut more than 120 stores and sell property. Same-store sales are down sharply as is profitability. Fitch Ratings has cut the company’s bond to junk status, and it’s likely to have hundreds of millions in writedowns ahead. I think the company is going to restructure, and net income is going to fall to the tune of billions when now-litigation conscious accountants have their day.
Research In Motion
Once the darling of connectivity and a status symbol for the cognoscenti, Research In Motion‘s (NASDAQ:RIMM) share of the smartphone market continues to evaporate like fog on a hot morning. I recommended shorting the company a few years back but was early to the party on several occasions — somehow the stock seemed to fight back. The stock is down over 88% from its peak of $144.56 in early 2008 and up a creek without a paddle …and you know which creek I am talking about.
Dual Chairmen and CEOs Mike Lazardis and Jim Balsillie — who also are co-founders, by the way — couldn’t fix things, and with Apple‘s (NASDAQ:AAPL) iPhone and Google‘s (NASDAQ:GOOG) Android users on the rise, I don’t believe they will. Long-term government contracts prized for their encryption and steady cash flow are falling by the wayside. Small businesses are dropping the company like hotcakes because of the constant updating, technical complexity and brain damage — mine included. We switched to Droids more than a year ago and have never looked back. The technology has simply had its day, and this is yet one more innovator that’s about to head into the sunset. It’ll be lucky to find a buyer.