Investing: Stocks to dump now
BY LAWRENCE CARREL Kiplinger's Money Power
Thursday, April 19, 2012
It’s not easy to sell stocks when the market is rallying. Even the shares of undeserving companies can appreciate. Still, companies with problems will eventually see their share prices fall. The stocks of these two companies have already fallen, and they’re likely to go even lower.
Start with Groupon (symbol GRPN; recent price, $14), one of the biggest beneficiaries of the hype surrounding social media. The Chicago-based daily deals company arranges terms with local merchants, emails the bargains to its millions of subscribers, then splits the revenues with the merchants. Groupon’s initial public offering debuted at $20 in November. The stock peaked at $31.14 on its first day of trading, but within a month tumbled below $15.
Groupon may be the first company in this business, but there are no barriers to entry and competition is heating up. In addition to other start-ups, such as Living Social, deep-pocketed giants Amazon and Google have entered the market.
Groupon’s numbers are starting to reflect the tougher climate. Although its revenues soared 419 percent in 2011, revenue growth in North America declined every quarter last year. Operating expenses jumped 149 percent in 2011, and the company has yet to post a profit.
Most worrisome is the company’s history of using the bulk of early venture-capital funding to buy stock from insiders, instead of investing in the business. That suggests the shares could crater on May 4, when the 180-day lock-up ends and insiders get their first chance to sell stock in the public market.
After falling nearly 80 percent over the past year, shares of Research in Motion (RIMM; $13) now trade for just six times estimated year-ahead earnings. The stock looks like a steal, right? Wrong. The Canadian maker of wireless devices is taking a beating from Apple’s iPhone and iPad and from devices using Google’s Android system, and the battering shows no signs of abating.
Yet after this year’s self-inflicted wounds, it looks like the BlackBerry smartphone maker is its own worst enemy. Last April, RIM launched its Playbook tablet without including e-mail or BlackBerry’s popular messenger service. Then it delayed an upgrade for the Playbook for almost a year. And when RIM’s email and Internet services were disrupted for three days in October, business clients began to question the company’s reliability.
With a new BlackBerry phone and operating system not expected until late 2012, there seem to be few positives that could lift the stock in the near term. Meanwhile, Apple unveiled its latest iPad model in March, and Amazon is expected to release a new version of the Kindle later this year, which could make the Playbook irrelevant.
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