by Lawrence Meyers | May 30, 2014 9:28 am
There are several stocks that seem to perpetually attract bullish attention for which I have little enthusiasm. In fact, I’m outright bearish on them.
These are all recognizable names, but they’ve been doing well for various reasons, or stocks that have fallen and are considered values when they are actually value traps. In short, they’re stocks that investors are better off avoiding.
But which stocks are these? And what makes them such a bad bargain? Let’s take a closer look at three high-profile stocks to sell.
IBM (IBM) remains at the top of many buy lists, but I think the name is there simply because of the name. Legendary investor Warren Buffet, owns IBM stock and has even increased his stake in Q1. IBM stock used to be the brand name in computing technology before it started faltering some twenty years ago, downsizing drastically.
IBM is the classic example of a company that sat on its laurels and was slow to innovate. Perhaps it figured that, as long as Microsoft (MSFT) dominated the operating system software market, people would always buy IBM computers. So everyone else became the experts in mobile and cloud, and IBM stock lingered in the slow lane while other companies zoomed past.
Bulls point to IBM’s new initiatives like Watson and cloud, but what I see are revenues that are declining year-over-year, in turn creating a decline in operating and net income. This is a no-growth company. There’s no reason to invest in it, not with a dividend at only 2.4%.
IBM stock isn’t going away. It still generates $100 billion in sales and low eight figures in free cash flow. But it isn’t at the forefront of technology anymore. There are better places to invest your money. Sell.
Lululemon Athletica (LULU) was all the rage for several years. But the thing about clothing retailers is they tend to follow the same pattern. They hit the market, they grow quickly, and the stock takes off.
LULU stock was a ten-bagger between 2009 and 2012. The stock hit a high of $81 about a year ago, and today sits at $45. That’s because the trend of retail clothing stocks has another stage– the massive sell-off. Something always happens. Retail buyers are a fickle lot, and the market is littered with retail stocks that have lost 90% or more of their value.
LULU stock now has a new CEO as it struggles to deal with competition from Under Armour (UA) and Nike (NKE). The problem underlying the company is same thing that plagues all retail — the need to constantly innovate with new styles and fashions. That isn’t so easy, and if a company misses what its base wants, that base will run to the next store in the mall. Going on the theory that a company cannot please all of the people all of the time, that fall from grace seems inevitable.
LULU’s earnings are expected to be flat this year, but rebound next year. With projected 16% long-term growth, LULU stock trades at 21 estimates, backing out its $700 million in cash. That’s way overvalued. Sell.
Twitter (TWTR) stock continues to trade at a $17 billion market cap, which is bizarre for a company that had a $635 million operating loss last year.
I can understand investing in a stock that you think has potential that has yet to be realized, but TWTR stock is the classic example of a company whose long-term vision is vague and ill-defined.
I simply don’t understand how all these Twitter users are going to be monetized. Twitter strikes these ad deals with big agencies which bring it revenue, but it is unclear how effective ads are with Twitter.
I don’t see the value proposition with TWTR stock. As the Sharks says on Shark Tank, I’m out. Sell.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at email@example.com and follow his tweets at @ichabodscranium.
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