With 2014 just a couple of weeks away, you’re going to be bombarded with a number of predictions about how the stock market is going to perform in the new year. I’m no great prognosticator, but I see only three possibilities:
![stocks to sell](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
2.) It will stay flat.
3.) It will go up.
Yes, I’m a jerk, but my point is that making a broader-market call involves way, way too many variables that you and I can’t begin to intelligently piece together.
However, there are a couple easier calls to make in the individual stock world, like which stocks to sell. Specifically, there are a few businesses that, heading into 2014, are firing off enough warning flares that it’s impossible not to notice.
The following is a look at three such companies whose roaches are too numerous and whose hurdles are too high to clear. Consider these stocks to be dead-money investments for the year, and invest your money elsewhere:
JCPenney (JCP)
Following months of disappointment on the sales front thanks to Ron Johnson’s misguided leadership, JCPenney (JCP) actually has had a couple of pieces of promising news more recently. In October, JCP reported a 0.9% uptick in same-store sales — its first improvement in comps since December 2011 — and it’s now estimating that November same-store sales have jumped an impressive 10%.
So, why not believe in the JCP comeback story?
Well, for one, JCP had some awfully, awfully easy numbers to go up against; in the year-ago period, JCPenney recorded a 32% flop in comps. Not to mention, the evil flipside to JCPenney’s improved sales figures is that they’re coming on the return of deep-discount sales. Thus, until we find out just how much in profits JCP is sacrificing, it’s hard to get too jazzed.
Most troubling, however, is an SEC investigation into JCPenney’s “liquidity, cash position, and debt and equity financing,” as well as the company’s September secondary offering that raised $810 million. While JCP denies it, several investors said CEO Mike Ullman told them a secondary offering would not be necessary. And while JCPenney does list roughly $2 billion in liquidity, the retailer could easily burn through that within a year.
Meanwhile, estimates for this fiscal year are for a loss of nearly $6 per share after JCP bled $3.50 last year. And while analysts see improvement in FY14, it’s still expecting a $2.68 loss.
Even if you believe in what JCPenney is doing, it might bleed to death before it ever crosses the finish line. I wouldn’t risk it.
RadioShack
In early 2012, I said to leave then-high-yielding RadioShack (RSH) alone. Its fat dividend wasn’t a sign of financial health, but a byproduct of a share price that was hurtling toward the earth.
Between then and the end of the year, RadioShack had suspended its dividend and RSH stock had been hacked down by a staggering 70%.
This isn’t an “I told you so.” This is a warning.
You see, RSH stock has actually had a pretty good 2013, slightly beating the market with 26% gains. But I couldn’t tell you why.
While its cash flow is headed in the right direction, (from $9.5 million a year ago to $112.6 million in the most recent quarter), its total cash and short-term investments have been headed the wrong way (from $572.6 million to $349.8 million). Meanwhile, RadioShack has been a perpetual loss machine, including red ink in the most recent quarter that exploded to $1.09 per share — compared to 33 cents per share in the year-ago period.
And more broadly speaking, RadioShack is dogged by a multipronged attack of better competition. As far as brick-and-mortar establishments go, you’ve got Walmart (WMT) and Target (TGT) offering up some more basic consumer tech, while larger electronics-specific companies like Best Buy (BBY) and hhGrgegg (HGG) offer just about everything RadioShack does (and more).
Then you’ve got Amazon (AMZN), which can topple RadioShack on price and also has the added benefit of not requiring a trip out to an actual store. (All of these issues have conspired to bring RSH to where it is today, and none of them are changing anytime soon.)
RadioShack might indeed have found a way to at least stabilize, but make no mistake — this isn’t a growth business waiting to explode. At best, RadioShack will be dead money in 2014 as it bails out enough water to keep from drowning. At worst, it will continue to bleed out and punish shareholders clinging to the thoughts of some miracle turnaround.
Crumbs
I love cupcakes. More specifically, I love Crumbs Bake Shop (CRMB) cupcakes. I absolutely do.
That’s why it pains me to say that CRMB stock is dead money.
Crumbs went public at $13.10 per share back in mid-2011, and it has been a bumpy road since then. On the positive side, sales improved 28% in 2011, still grew (albeit more slowly) 8% in 2012, and are expected to improve by 23% this year before slowing down to 16% growth next year.
The other side is much more painful. Earnings have been absolutely nonexistent. CRMB hasn’t posted a positive quarter since going public, according to Standard & Poor’s data, and accelerated losses from 66 cents in 2011 to $1.12 last year. This year’s expected to be better, but not by much, with Wall Street anticipating a $1.05 deficit followed by a 75-cent loss in 2014.
Revenue | |||||||||
Year | 1Q | 2Q | 3Q | 4Q | FY | ||||
2013 | 12.08 | 12.35 | 11.42 | — | — | ||||
2012 | 11.28 | 11.08 | 9.90 | 10.78 | 43.03 | ||||
2011 | 9.72 | 10.29 | 8.88 | 10.99 | 39.88 | ||||
2010 | 7.12 | 7.92 | 7.51 | 8.53 | 31.08 | ||||
2009 | — | — | — | — | — |
Earnings Per Share | |||||
Year | 1Q | 2Q | 3Q | 4Q | FY |
2013 | -0.17 | -0.23 | -0.49 | — | — |
2012 | -0.09 | -0.14 | -0.23 | -0.49 | -1.12 |
2011 | -0.19 | -0.05 | -0.17 | -0.45 | -0.66 |
2010 | 0 | 0 | -0.04 | -0.06 | -0.10 |
2009 | — | — | — | — | -0.01 |
The total result is that CRMB stock now trades roughly 95% below its IPO price, and more importantly, at 75 cents per share. Why is that important? Because one of the Nasdaq’s criteria for listing is that your share price must remain above $1, and a 30-day spell under that mark prompts a warning, after which the company has 90 days to climb back above it or face delisting, which can have a devastating effect on a stock. CRMB stock hasn’t closed above $1 since Nov. 25.
Companies sometimes are given extensions, and sometimes they pop back to life — in fact, that happened back when I warned investors about Joe’s Jeans (JOEZ) being on the delisting bubble. (Though JOEZ has quietly made its way back down near that $1 level.) But the point is that companies flirting with this line are doing so for a reason — and usually that’s because of big, glaring weaknesses, such as huge, sustained losses.
Meanwhile, the truth of Crumbs’ business is that cupcakes increasingly are looking like a fad, and that fad is standing right on the railroad tracks of America’s amped-up focus on personal health.
CRMB stock is stuck in a perilous place. It’s better off avoided.
Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @IPKyleWoodley.