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10 Stocks That Won’t Exist in a Decade

Change is a constant in the public markets ... but these 10 stocks likely won't be on the public markets 10 years from now

The one constant is change, as the old cliche goes, and that’s true in the markets as well. Mergers, spin-offs and bankruptcies consistently change the landscape of publicly traded companies.

10 Stocks That Won't Exist in a Decade
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The increasing importance of technology has accelerated that change. It was barely a decade ago that BlackBerry Ltd (NASDAQ:BBRY) was worth more than Apple Inc (NASDAQ:AAPL). But the iPhone won, the BlackBerry lost and their positions switched. The impact of e-commerce, led by Amazon.com, Inc. (NASDAQ:AMZN), has re-shaped the brick and mortar retail industry. Several retailers have gone bankrupt — and many more seem likely to follow.

Technology also has increased the importance of M&A. Companies find it ever more difficult to maintain a competitive edge — and must look outside for growth. Intel Corporation (NASDAQ:INTC) suffered through years of meager growth, and in response bought out Mobileye NV (NYSE:MBLY) to enter the autonomous driving market. Facebook Inc (NASDAQ:FB) purchased Instagram and WhatsApp, among other companies, to protect its platform.

The markets will look very different a decade from now, and it assuredly will not consist of all the same companies that exist today.

Here are 10 stocks likely to exit the public markets over the next 10 years — some as buyout targets, and some as bankruptcies.

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Stocks That Won’t Exist in a Decade: Barnes & Noble (BKS)

The Way Out: Bankruptcy

It’s not as if Barnes & Noble, Inc. (NYSE:BKS) hasn’t tried. The company had some fleeting success with its NOOK e-reader … but that unit now is expected to lose $20 million on an EBITDA basis in fiscal 2017 (ending April). Barnes & Noble offers Starbucks Corporation (NASDAQ:SBUX) coffee in its cafes, but traffic continues to decline.

With Amazon now opening its first store in New York City, Barnes & Noble faces new bookstore competition — something it hasn’t had in some time. And with comparable-store sales expected to decline 7% in FY17, it’s not as if business is all that strong to begin with.

BKS still is profitable, still generates cash and still pays out a handsome 6.5% dividend yield. But the tipping point for Barnes & Noble is coming in the next few years: As sales decline, the company will turn unprofitable. And at some point — likely within the next few years — Barnes & Noble will be just another one of Amazon’s many brick-and-mortar victims.

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Stocks That Won’t Exist in a Decade: National Beverage (FIZZ)

The Way Out: Buyout

National Beverage Corp. (NASDAQ:FIZZ) has been one of the hottest stocks in the market in 2017. FIZZ stock — aided in part by a short squeeze and by a monster fiscal Q3 report in early March — has nearly doubled from January lows, hitting an all-time high near $88 in the process.

The driver for FIZZ is its LaCroix sparkling water brand, which is driving both huge sales growth and margin expansion. It seems apparent at this point that National Beverage is taking market share from The Coca-Cola Co (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) — particularly the struggling diet brands of those behemoths. With Dr Pepper Snapple Group Inc (NYSE:DPS) paying $1.7 billion for smaller health player Bai Brands, a $5 billion-$6 billion price tag for FIZZ — and a $100-plus/share buyout offer — seems realistic.

Add to the growth of LaCroix the fact that National Beverage CEO and majority shareholder Nick Caporella is 81 years old, and a takeout of FIZZ seems exceedingly likely over the next decade.

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Stocks That Won’t Exist in a Decade: LendingClub (LC)

Source: Shutterstock

The Way Out: Bankruptcy OR Buyout

At this point, LendingClub Corp (NYSE:LC) looks like a binary story. LendingClub still is losing money: EBITDA was negative for full-year 2016. Originations are down as well, as LC still hasn’t quite figured out its model. The LendingClub story could end in bankruptcy, particularly if even a mild recession leads to both higher credit losses and increased difficulty in securitizing LC’s unsecured loans.

Of course, LendingClub isn’t dead yet, and there is reason for some optimism. The peer-to-peer lending model still has promise, and LC has had some success in getting larger funders back onto its platform. LC shares have risen 58% from 52-week lows, as at least a few investors are betting on a turnaround.

If that turnaround comes, then LendingClub likely becomes an acquisition target. Just as soda majors might target FIZZ for growth in new markets, traditional banks like JPMorgan Chase & Co. (NYSE:JPM) or Bank of America Corp (NYSE:BAC) would prefer to buy a successful LendingClub instead of building their own platforms.

Either way, LendingClub seems highly unlikely to an independent company ten years from now.

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Stocks That Won’t Exist in a Decade: Valeant Pharmaceuticals (VRX)

The Way Out: Bankruptcy

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is another binary play. Valeant is trying to navigate a $30 billion-plus debt load through cost-cutting and asset sales. If that strategy doesn’t work, bankruptcy likely follows.

I continue to believe that’s the most likely scenario for Valeant. Clearly, the market agrees, as VRX stock continues to slide. But even if Valeant somehow can muddle through, a sale becomes the most likely option. Valeant has had to cut back on R&D spend, won’t have the same scale as majors like Pfizer Inc. (NYSE:PFE) after asset sales, and from a branding standpoint would be better served under the umbrella of a less-controversial company.

Again, Valeant’s prospects of surviving even the next few years look slim. But should Valeant manage to make it through to the next decade, the next step will not be selling assets — but the entire company.

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Stocks That Won’t Exist in a Decade: Sprint (S)

The Way Out: Buyout

Like Valeant, Sprint Corp (NYSE:S) has a huge debt load. But Sprint stock has gone in the opposite direction of VRX stock. S stock has tripled from early 2016 lows, even after some modest weakness in 2017.

Sprint’s bankruptcy risk isn’t zero, but it’s far lower than it appeared to be just 18 months ago. An innovative bond backed by the company’s massive spectrum holdings has lowered interest expense and extended debt maturities. Meanwhile, steady subscriber growth and share gains at the expense of Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) have improved the company’s earnings profile.

That improvement has made Sprint one of the most discussed acquisition targets in the market. Verizon, AT&T and DISH Network Corp (NASDAQ:DISH) all have been rumored suitors. A combination of Sprint and T-Mobile US Inc (NASDAQ:TMUS) is another possibility. Whatever the outcome, the odds of Sprint looking the same in 2027 as it does in 2017 seem very slim indeed.

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Stocks That Won’t Exist in a Decade: Sears (SHLD)

The Way Out: Bankruptcy

Sears Holding Corp (NASDAQ:SHLD) stock has better than doubled just since February, in large part due to an epic short squeeze aided by insider buying. But from here, the recent gains look more like a “dead cat bounce” than any real change in the prospects for Sears.

Of course, even the bull case for SHLD stock rests in large part on the real estate underpinning the business – not the business itself. Sears itself added “going concern” language to its most recent 10-K filing after an abysmal year. But SHLD bulls insist that real estate and assets like the Kenmore brands and royalties on Craftman sales by Stanley Black & Decker Inc. (NYSE:SWK) are worth more than the debt — even if both Sears and Kmart cease to operate as traditional retailers.

I’m skeptical of that case, and I still believe SHLD stock is headed to zero. But even if Sears survives, it won’t be as a retailer.

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Stocks That Won’t Exist in a Decade: Ruby Tuesday (RT)

Ruby Tuesday, Inc. (NYSE:RT)
Source: Shutterstock

The Way Out: Bankruptcy

There’s another struggling business looking to monetize its real estate: Ruby Tuesday, Inc. (NYSE:RT). Ruby Tuesday still owns 269 of its restaurants, and with business declining, is closing both leased and open properties to bring in cash.

In theory, the numbers work, as Ruby Tuesday restaurants have sold and/or been valued at $1.5 million-$2 million each. Yet Ruby Tuesday has an enterprise value of just $330 million. Hypothetically, Ruby Tuesday could sell its restaurants for at least $400 million, and still have a base of leased restaurants and franchise royalties to add further value.

One major problem is that there are costs in closing even fully-owned restaurants, such as severance costs. Another problem is that the existing business is lagging competitors like Darden Restaurants, Inc. (NYSE:DRI) in what overall is a struggling industry. In sum, the bull case for RT stock is based on one problematic argument: Ruby Tuesday real estate would be more valuable if only it were occupied by anything but a Ruby Tuesday restaurant.

Still, a sale is possible. A real estate firm has taken a 9.5% stake in the company, driving up RT stock in the process. However this plays out, RT is a real estate play at this point – there’s very little value in the business. Ruby Tuesday will be wound down one way or the other – the only question is how much, if anything, shareholders will receive in the process.

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Stocks That Won’t Exist in a Decade: AMC Networks (AMCX)

AMC Networks Inc (NASDAQ:AMCX)
Source: Shutterstock

The Way Out: Buyout

It’s hard not to wonder if AMC Networks Inc (NASDAQ:AMCX) hasn’t already missed its window for a sale. AMC and Starz were rumored to be discussing a merger for some time – but Starz sold itself to Lions Gate Entertainment Corp. (USA) (NYSE:LGF).

With AMC’s flagship show The Walking Dead seeing declining ratings, no major hit behind it, and cord-cutting and “skinny bundles” potentially pressuring viewership, AMC’s small portfolio doesn’t seem like enough to manage through a tough time for content providers.

Simply put, it’s going to be very difficult for AMC to navigate all the new online streaming plans: Hulu, Sling TV, YouTube, etc. A bankruptcy is unlikely: AMC does have a reasonable amount of debt, but residual profits from The Walking Dead, Mad Men, and Breaking Bad have real value, and AMC spent $1 billion for its overseas business as well.

But it’s not hard to imagine AMC waiting too long to make a move — and having to settle for any offer necessary to allow it compete amidst content giants. And it’s extremely difficult to picture AMC lasting another 10 years on its own amid what almost certainly will be a massive change in the media landscape.

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Stocks That Won’t Exist in a Decade: Craft Brew Alliance (BREW)

Craft Brew Alliance Inc (NASDAQ:BREW)
Source: Shutterstock

The Way Out: Buyout

In August, Craft Brew Alliance Inc (NASDAQ:BREW) signed an agreement with Anheuser Busch Inbev NV (ADR) (NYSE:BUD) that seemed to signal an eventual acquisition. BREW stock soared to over $22 in the days following the announcement, one that clearly incentivized A-B to buy the ~70% of BREW stock it didn’t already own.

Investor patience has waned ever since, however. CBA has struggled with sales of its legacy craft beers like Redhook and Widmer Brothers, which have been displaced by local options outside their Northwest base. And the company simply hasn’t figured out a way to drive consistent profits.

Still, a sale of BREW seems likely at some point — and Anheuser Busch still seems the most likely acquirer. CBA’s Kona brand continues to post double-digit growth, and sales of other brands like Lagunitas and Ballast Point imply substantial upside from current levels. Like AMC Networks and National Beverage, Craft Brew Alliance simply lacks the scale to compete in the current market environment.

That’s a dangerous place to be. And it’s a place companies generally look to exit as soon as possible.

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Stocks That Won’t Exist in a Decade: SeaWorld (SEAS)

The Way Out: Bankruptcy OR Buyout

SeaWorld Entertainment Inc (NYSE:SEAS) simply hasn’t recovered from the bad publicity generated by the 2013 documentary Blackfish. SEAS stock hit an all-time low in late 2016, and though shares have recovered somewhat, they’re heading south again after a difficult year. Profit declined 8% last year, with attendance down 2.1%.

The problem for SeaWorld is that its fixed-cost base is incredibly high, which means lower attendance reads across to sharply lower profits. And with its leverage ratio nearing 5x, interest expense is a significant issue as well.

SeaWorld may have a savior: Chinese firm Zhonghong Zhuoye acquired a 21% stake in the company last March. And if the company can stabilize its business, larger theme park operators like Six Flags Entertainment Corp (NYSE:SIX) or Cedar Fair, L.P. (NYSE:FUN) could be interested.

That’s a big ‘if’ at the moment, however, and if SeaWorld can’t stop attendance declines, a sale could be forced upon the company. Either way, on its current trajectory, SeaWorld Entertainment is going to need cash from somewhere. That implies a likely sale – either before, or after, bankruptcy gets close.

As of this writing, Vince Martin did not hold a position in any of the aforementioned securities, but may take a long position in BREW stock this week.


Article printed from InvestorPlace Media, http://investorplace.com/2017/04/10-stocks-that-wont-exist-in-a-decade/.

©2017 InvestorPlace Media, LLC