Maneuvering this world as a long-term investor requires patience. On a weekly if not daily basis you’re bound to watch some bearish analyst note take one of your holdings down. Most of the time these reports address near-term pressure that generally has little to do with a company’s long-term story. That’s when you buy on the dips: When you have confidence that the forward-looking narrative remains intact.
There are times you must cut and run. A stock becomes dead money because the trajectory is mired with uncertainty or, worse yet, the company adheres to an unworkable long-term strategy.
In this article, I review four stocks that fit into one or both of those categories. If you own these stocks, take a long hard look at selling them. If you decide to hold on or buy more, check yourself. Are you staying the course on the basis of some irrational emotional force or do you objectively believe the future looks bright?
1. J.C. Penney
Jim Cramer got it 100 percent correct:
The most nauseating thing about this conference call? Evidence of Johnson’s hubris continued with the lack of any real humility about the dividend elimination, which is something older investors most definitely counted on. There was more touting of the changes he’s putting through — none of which look like they are working. He also said, “This is not a throwaway year. We expect to earn money this year — good money.”
Where did he get that from? Or how about that he says that the turn is 29 percent complete? Huh? That’s a pretty amazing and precise prediction given how wrong he’s already been.
Of course, Cramer was referring to former Apple executive and current J.C. Penney CEO Ron Johnson on his company’s Tuesday conference call.
This month I made similar comments. I had listened to Johnson’s presentation to investors and analysts.
At the event, the CEO told a funny little story about Steve Jobs asking him if he was crazy when Johnson went to his house to tell him he was leaving Apple. Johnson opened himself up to random cognitive testing when he made the curious and convoluted case that when he left Target, the company, like Apple today, was on the top of its game. Now, Johnson claims he is leaving another thriving company to join a laggard that, without question, he will magically turn around.
I think we’re seeing the Steve Jobs effect work in reverse. It’s well known that Jobs willed the people around him to do great things, to reach beyond their potential and accomplish the impossible. Johnson’s experience at Apple — made entirely possibly by Steve Jobs — has turned him into George W. Bush. The late great former governor of Texas, Ann Richards, once said of Bush: “He was born on third base and thought he hit a triple.”
Management at RadioShack faces similar challenges as J.C. Penney.
In both cases, you have companies that need to completely transform entire industries. For as great as Johnson thinks he is, he no longer rides shotgun next to Steve Jobs. And you really cannot mention RadioShack in the same breath as Apple or Jobs.
Cramer said he was “appalled” when he toured a J.C. Penney recently. I would agree, except my experience there was so uninspiring I could not even muster that much emotion. It’s exactly how I feel when I walk into a RadioShack. These guys are as bad as President Barack Obama; they talk a lot about change, but, by the looks of things on the ground, all they can really do is ask us to keep on hoping.
I was long Wendy’s and bailed last week. Looking at Thursday’s pop, I wish I had waited a few days to exit, but it’s all good. I had to sell, regardless of price. TheStreet Ratings downgraded Wendy’s to “hold” from “buy” Thursday, and for good reason.
While management at Wendy’s deserves more credit for how it’s framing the company’s pending turnaround, there’s too much uncertainty. Unlike Johnson, Wendy’s CEO Emil Brolick does not position himself as a world beater. He takes a measured approach, cautioning investors clearly that it will take several years to see meaningful results as Wendy’s continues to make tweaks.
Even so, I cannot sit around and wait as the company remodels only a dozen or so stores a year. Plus, it faces fierce competition on the low and high end of fast food. Wendy’s might turn things around, but better bets exist for your speculative money.
4. Sirius XM Radio
Sirius XM Radio was once a speculative stock. It even made a gaggle of penny stock guys quite wealthy, if you believe their tall tales. Now it’s little more than dead money.
Already firmly planted under $2, Sirius XM breached its 200-day moving average of $1.95 on Thursday morning. If it closes below that level, get ready for the second leg of the implosion.
Sirius XM shareholders need to stop rattling the wrong cages. Use their time wisely. Do not activate the emergency telephone tree and instruct the cult to comment on every bearish Sirius XM story that hits the wire. Direct that energy to an area where you might have a snowball’s chance in Midtown Manhattan of inciting actual change.
Implore Mel Karmazin to step down and hand the reins over to John Malone’s Liberty Media. At this point, Mel’s ego appears to be getting in the way of making the right decision.
The CEO, with major assists from Malone and Howard Stern, has done a fine job getting Sirius XM to where it is today. Wall Street realizes he is no longer the man for the job. With its stable of fine assets, Liberty understands that the future sits in a social, synergistic and cross-platform world. The longer this quagmire persists, the less of a chance Sirius XM has to prepare itself for a future Karmazin has no idea how to navigate.
—By Rocco Pendola, Contributor, TheStreet.com
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where’s the US Dollar Today?
- Track Treasury Prices Here
TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. Disclosure information was unavailable for Rocco Pendola.