Predictions 2012

Herb Greenberg:  Retailers, ETFs, Chinese ADRs


1. A new name and new mission for J.C. Penney.

Look for J.C. Penney to be formally rechristened JCP and, with the perception of becoming the hottest and possibly hippest mass merchant and retail turnaround since the last (albeit, short-lived) J.C. Penney turnaround in the mid-2000s. Its secret weapon this time: New CEO Ron Johnson, who recently joined the company from Apple and before that, Target), taking a few key Apple execs with him.

J.C. Penney

Never bet against a good merchant, especially one as motivated as Johnson, who obviously views this as the challenge of all retail challenges – one that will secure his legacy. If Johnson is successful, JCP could wind up taking share from Kohl’s, Target and Macy’s . But the biggest loser, bar none, will be Sears, which coincidentally is Prediction No. 2.

2. Sears will restructure.

Once the country’s largest retailer, Searscontinues to report quarter after quarter of disappointing results. Investors grow weary.

As the stock continues to drift lower, the company will try one last trick: By mid-year, it will announces a big restructuring that focuses on mass store closing. As one industry insider told me, “This is really a bunch of tired retail assets being staged for monetization into real money” for hedge fund manager Eddie Lampert, who took control of Sears in 2004.

3. Another restructuring for Best Buy.

After another disappointing Christmas, and some initial hype of renewed interest in TVs as Apple shakes up the industry with a revitalized Apple TV, reality hits: Consumers continue to shift TV buying to the lowest-cost provider — resulting in further pressure on operating margins. For Best Buy that means yet another restructuring, as the company shuts its largest stores and rolls the dice with an almost all-out bet on mobile at the expense of appliances, computers and, yes, a whittled down TV department. To top it off, the company becomes the focus of private equity/going private rumors.

4. K-Cups KOs Green Mountain.

The SEC’s investigation into allegations of questionable accounting at Green Mountain will intensify in the first quarter. By mid-year, margins start to slide and K-Cup knockoffs proliferate as patents on Green Mountain’s K-Cups start expiring, making it obvious that licensing partners like Starbuckswere the real winners in the deals struck with Green Mountain.

5. Hard times for Netflix, ETFs and Chinese stocks

With its stock having plummeted, Netflix (lock, stock and off-balance sheet content costs) is acquired by (drumroll!) Facebook, on whose board Netflix CEO Reed Hastings sits. Also: As market volatility continues, expect regulators and politicians to seek a scapegoat. The most likely target, because it has the least lobbying power: Leveraged ETFs. And accounting issues continue to hamper Chinese stocks that trade in the U.S. But with their stock values already pummeled, nobody cares.

2011 Scorecard

I'll take an A- for last year's predictions.

1. For-profit colleges make operating changes.

Grade: A

The for-profit education industry did begin changing its business plans and reducing expected growth rates. In retrospect, it was an understatement.

2. Netflix stock gets rocked.

Grade: A

The stock was $200; it's now around 70. (Of course, I also said it would be acquired by Google . For that I get an F.)

3. Scrutiny and trouble for the ETF market.

Grade: C 

There has been scrutiny of ETFs, but only at a C-level and with no sudden price collapse of a hilly leveraged ETF.

4. U.S. investors will shy away from Chinese stocks.

Grade: A

Whether for "allegations of accounting fraud," as I also predicted, or otherwise it happened.

5. General Motorsstock slips below its IPO price of $33.

Grade: A

It did, and early in the year (March) as I also predicted.