Hilary Kramer is pretty good. She does a few big flops like everyone else, like DNDN, but she does have valid info in her statements about different stocks like what she knows about debt loads:
The Right Way to “Sell in May”
That said, "Sell in May" isn't a bad way to go for stocks you're not so sure about. To help you in your thinking, let me share some of a list I just put together for my subscribers of stocks to avoid as we head into May. Many of the stocks have shrinking margins, bleak revenue outlooks, increased competition, and could be affected by a cautious consumer as well. At best, I expect them to be dead money for a long time; at worst, they could drag down your portfolio.
Chipotle Mexican Grill (CMG) has had a great run, up 200% over the last two years, but the company now faces a number of challenges. One is potential market saturation, which would lead to a decline in their record revenue growth. There's also a new emphasis on homemade meals as well as upgraded supermarket takeout food. In short, Chipotle must deal with customers who are concerned about prices, labor cost pressures and unstable commodity/food expenses. International growth is the company's big plan, but it's not clear yet whether the spicier foods will translate as well in international markets as menus of competitors like McDonald's and KFC.
Dunkin Brands Group (DNKN) has put up some good numbers recently, but I'm leery of several things, including the huge debt load and the ownership structure. DNKN is a "controlled company" with more than 80% of its ownership is in the hands of three private-equity firms (Bain, Carlyle, and Thomas H. Lee), which always raises the concern that private equity owners will "cash out."
In addition, Dunkin Brands faces a tough challenge in its
efforts to do better in the afternoons and evenings and unseat Starbucks, the current leader at those times of the day. DNKN is also not cheap, trading at more than 25X expected 2012. I think a more reasonable valuation would be around 16X, which would be closer to $20 a share.
DirecTV (DTV) is expecting to face rapidly increasing programming costs, in large measure because the company has had to fork over ever-increasing amounts of cash to keep exclusive National Football League content for its NFL Sunday Ticket package. Not surprisingly, DirecTV has said that customer growth should slow as a result of higher costs, and management recently signaled a shift in focus toward "customer retention" rather than heavy promotions to draw in new subscribers. Equipment subsidies and marketing costs now top $800 for each customer acquired, and it takes about 18 months for DirecTV to get that money back.
In addition, more content is available online, so more people are turning to the Internet for programming. That hurts DTV more than competing cable companies that offer high-speed Internet access along with phone and television service.
Radio Shack (RSH) is struggling with competition from giants like Amazon (AMZN) and Best Buy (BBY). The company met analysts' expectations in its fourth-quarter report, but that came on the heels of four straight earnings misses, and first-quarter results announced April 24 went back to being another miss.
Part of the problem is that a higher percentage of the company's sales are coming from mobile products, which carry very low margins, and changes at Sprint have also impacted results. In addition, in early March, right as the company was searching for a new lead advertising agency, Executive Vice President and Chief Marketing Officer Lee Applbaum abruptly left the company. I would stay away from the stock until there's a clearer picture of where the company is going.
Sears Holdings (SHLD) keeps reporting lower sales and profits. With poor customer service and concern about the quality of their appliances and other one-time A-level items, the retailer is on a downward path.
CEO Eddie Lampert has been scrambling to raise cash and calm investor fears, and he does have a history of igniting investor interest from time to time. To stay afloat with enough cash flow, Sears has been trying to sell off or spin off its stores. One well-respected Wall Street analyst called the process "a controlled liquidation of its chain," and I agree. While the move sent its stock soaring more than 20% and put rumors of bankruptcy to rest, Sears, in the end, looks on a path to fall short of money again.
You can't run a business by selling off assets. Sears needs to address fundamental problems and find a buyer that can provide synergistic upside. In the end, the company has too big of a struggle ahead of it in a time of high unemployment, shrinking credit and competitors doing a better job both online and in bigger box stores.
