Posted on Monday, 9th January 2012 by Nate Sawers
There’s no better time to take a good hard look at your portfolio than the beginning of a new year.
I know this may 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 which are likely to hold my portfolio back in the next twelve 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):
1. Sears Holdings Corp. (Nasdaq: SHLD) - Long a bastion of American retailing success, I’ve been leery of the company 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 K-mart 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 Inc. 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.
2. Research in Motion Ltd. (Nasdaq: RIMM) – Once the darling of connectivity and a status symbol for the cognoscenti, RIMM’s 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 89.52% 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.
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