Wall Street investment guru and editor of GameChangers Hilary Kramer has put together a list of 12 stocks which she advised investors to sell immediately.
While the names that appeared on the list are big ticket stocks, Kramer justifies her position, saying that investors usually make the mistake of holding on to what used to be hot previously. She says, for example, retail stocks were 'yesterday’s market leaders.'
Kramer, who was labeled 'a one woman financial investment powerhouse’ by the Financial Times, calls her list the 'Dirty Dozen.' Below is the list of these stocks, followed by Kramer's comments about each. (IB Times is not responsible for the investment decisions our readers take, based on the information in this article.)
1. Target (TGT)
There’s no question Target is a solid company and once was a game changer in the retail space, but tepid growth projections aren’t conducive to big stock gains.
Most of the stock’s gains over the last year have come from aggressive cost-cutting measures—a standard trick companies use to mask slow growth.
Comparable store sales were up an anemic 2.4%. Compare that to the 13% growth that Abercrombie & Fitch recently reported. Consumers are still feeling frugal, and Target simply doesn’t have a fast or easy solution to competing with Wal-Mart and Kohl's in this economic environment.
2. Starbucks (SBUX)
Increased labor costs, rising commodity prices and intense competition from McDonald’s (among others) all pose significant risks for the company in the year ahead. This once and former game changer isn’t going out of business, but it also isn’t likely to be a very exciting investment. For now, the stock appears to be pretty fully valued, and the company faces many issues.
First, the company is spending a lot of money on marketing with a focus on VIA (its instant coffee) and the new customizable Frappuccinos. Plus, unemployed consumers are still being cautious with their spending, and Starbucks has to deal with volatile labor costs and commodity prices. These labor costs are escalating in even traditionally cheap markets such as China.
3. Amazon (AMZN)
There’s a real danger that Amazon will see its stock sell off in the blink of an eye, however. And I wasn’t going to wait around for that to happen.
Amazon has had impressive growth prospects in Europe with their newly completed warehouse distribution center, as well as the rising Chinese consumption-oriented middle and upper class markets. However, Amazon’s competition is about to heat up as two Chinese companies are preparing to go public, possibly causing the Street to see AMZN as a distant third in China.
Speaking of competition, even though they are seeing record sales now, the adoption of Amazon’s Kindle will also continue to slow as the iPad gains further ground with consumers. Play it smart and sell Amazon now.
4. Dell (DELL)
Weak consumer sales, smaller IT spending by corporations and a major slowdown from the public sector (which accounts for a whopping 25% of Dell’s revenue) have contributed to slow growth. Plus Dell has been plagued with serious quality problems and poor customer service—creating what disgruntled customers have dubbed “Dell Hell.”
Dell’s magic formula (lower costs and higher prices) is busted as well. There’s no room to boost margin with tough competition from Apple, HP and others. Plus serious labor problems in China may mean paying higher wages.
The company is both a retail stock, as the company sells directly to consumers, but it also has one of the highest exposures to the public segment in the hardware and services sectors. Most budgets for municipalities, cities, states and public education have been severely hurt by the recession and lower tax revenue. As a result, they’ve reduced or eliminated their orders for hardware, which puts 25% of Dell’s sales in jeopardy.
5. Research in Motion (RIMM)
RIM faces similar challenges as well. Apple’s iPhone and a slate of Android phones are going to take a big bite out of their sales. Sales of its highly anticipated BlackBerry Torch smartphone were disappointing, and the company has a tough road ahead. Sell RIMM.
6. Lockheed Martin (LMT)
Lockheed Martin saw its backlog decline again, which has occurred in five of the past six quarters. Costs related to the voluntary attrition program and unfavorable adjustments to out-year consensus estimates due to potentially large incremental pension headwinds loom. I am concerned with trends in Lockheed’s large government/IT services segment and see significant remaining risk on F-35 development.
7. Northrop Grumman (NOC)
Northrop Grumman recently joined the list of defense companies to report declining backlog and weak bookings. This company is way too leveraged to the defense sector, and I expect major pressure on Department of Defense spending and contractor margins. Northrop also joined the list of defense companies reporting weak book-to-bill on the back of another sequential decline in backlog. While Northrop showed some margin improvement recently, its margins and returns on capital remain the lowest in its peer group.
8. Carnival Corp (CCL)
While Carnival has weathered the storm relatively well, there is just too uncertainty about booking volumes in the coming months. Europe could also be a weak spot, as Disney Cruise Lines recently said that market is soft — not surprising given all of the problems over there.
9. Marriott International (MAR)
There have been some glimmers of hope for the hotel industry lately, but the recovery for hotel stocks is not on the horizon just yet. Steer clear of Marriott for now.
10. 1800Flowers.com (FLWS):
FLWS recently reported improving margins in the last quarter, but faces increasing pressure from the competition. Management has said it expects revenue growth in 2011 to remain challenged because of the weak demand for discretionary items. I agree. High unemployment will also continue to weigh on floral sales.
11 and 12. The New York Times Company (NYT) and The Washington Post Company (WPO)
It’s no secret that print media has been struggling under the onslaught of the mighty Internet for years now. Some newspapers have found a way to adapt to the online age, but declining circulation and advertising revenues will continue to chip away at their profitability. Even the biggest names in the business will suffer.