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TheDumbMoney (50.08)

Updated Deathwatch List

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April 02, 2012 – Comments (13) | RELATED TICKERS: RSH , BKS , LUV

My original post from last week is here.

I'm collecting everything together again in alphabetical order.  A Deathwatch List (TM) is a list of companies you do not expect to survive in their present form.  For me, my guess is none of these have more than five years left, though debt financing could extend that in some cases.  Some of these also still have extensive cash holdings.

-- Airline industry, entire, except for LUV.  Added to list before it was actually a list in 2002.  Suggested again by commenter.  Since then many airlines have died or been bought out.  The economics in this industry are simply terrible.  There are a very few exceptions here, of which LUV is one, though less so than it once was. 

-- Best Buy.  Added to the list informally in 2009.  I see no reason for Best Buy's continued existence, given Amazon, WalMart, Target, etc.

-- Barnes and Noble.  Added to the list informally when the Kindle came out.  Amazon owns the book market.  They are dead in the water.  Reminded by commenter in last post.

-- Radio Shack.  Terrible name, dead business model, no moat, no reason to exist, uncompelling stores.  Radio Shack should change its name and try to reinvent itself as something along the lines of the next Fastenol, a company that has proved there is a big market for certain niche players.  Radio Shack is going nowhere as just another provider of cell phones. 

-- Research in Motion.  See post above.  My call in June 2011 was that they would go b/k or get bought out relatively cheaply.  The loss announced last week relating to the Playbook will not be their last.

-- Sears Holdings.  I think the only value in this is in some of its brands, and in some real estate holdings.  Kenmore, Diehard are the star brands.  Lands End they have done more harm than good to, and my understanding is it is about to be sold.  They have lost the low cost brand to Amazon and Walmart and they have nothing else to distinguish themselves.  I also think there is some value in their appliance-repair/servicing business.

There may be some value in some of these, particularly in Sears.  Smarter value investors than I am own a number of these.  But even to the extent value is unlocked in some manner by spinnoffs or buy-outs, I just think they will not continue in their present form.  BKS is probably in the most imminent danger.

13 Comments – Post Your Own

#1) On April 02, 2012 at 5:53 PM, TheDumbMoney (50.08) wrote:

For the record, Home Depot and Lowes are additional proximate causes of the death spiral of Sears.

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#2) On April 03, 2012 at 1:28 AM, TMFAleph1 (95.10) wrote:

GroupOn?

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#3) On April 03, 2012 at 1:14 PM, TheDumbMoney (50.08) wrote:

That is a good addition, Aleph. 

I would also add Yelp as a newly public company I think will not make much money, would not ultimately succeed on its own, but will be bought out at some point.  My best guess is that Microsoft will buy Yelp as a rejoinder to Google buying Zagat, to incorporate into its own maps service. 

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#4) On April 03, 2012 at 3:53 PM, Valyooo (99.48) wrote:

NYT

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#5) On April 03, 2012 at 3:57 PM, PeteysTired (< 20) wrote:

If BBY, TGT and other retails with phyical locations are able to change tax law and require Amazon to collect sales taxes, then does that change your BBY outlook?

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#6) On April 03, 2012 at 4:09 PM, TheDumbMoney (50.08) wrote:

Valyooo:  excellent addition.  NYT is, I'm personally sad to say, in serious tooky.

PeteysTired:  I think that is a serious issue.  But I the convenience factor is what draws people most to Amazon.  I don't think most people go to Amazon because they're thinking, hey I can skimp on my 6% sales tax!  That is particularly true since technically you are supposed to report that non-payment on your tax returns, and you can get penalized for not doing so, even under today's system.  People shop at Amazon because it's cheap, but even today WalMart is often cheaper than Amazon, even with WalMart collecting sales tax.  Last year I wanted to buy a compost bin and it was cheaper at Sears.com than it was at Amazon.  Amazon wins because of convenience, habit, excellent back-end customer service, the appeal of Prime, and overall selection.  I am no expert, but I do not think the tax issue is their primary competitive advantage by any means.  Personally, I go somewhere else online to buy only when I am left unsatisfied by Amazon, which is rarely.  And I only buy in brick-and-morter stores if it's a store brand, like buying jewelry from Tiffany for my wife, or groceries, or something I need today, as opposed to tomorrow or the next day.

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#7) On April 03, 2012 at 4:18 PM, TheDumbMoney (50.08) wrote:

Also, Best Buy's best bet is to reinvent itslelf into a sort of electronics version of Bed Bath & Beyond. 

Somehow Bed Bath manages to add value where Best Buy does not.  I think Bed Bath has been incredibly sucessfull with the 20% off mailers that they have constantly sent out for the last five years.  That has drawn me to Bed Bath stores in the past, and likely will in the future.  And then of course you buy more junk. 

But it's unclear how far Best Buy can go in this direction.  Ironically, I think there is so much information available about, and reviews of electronics, that I personally as a deliberate non-early adopter (because..., 'why?') have LESS need to buy electronics in a store than I have need to buy bath towels in a store.  Bath towels I want to touch before I go buy them to dry off my undercarriage.  But for a new TV I just want want to read the five hundred reviews of it that are already on Amazon.com.

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#8) On April 03, 2012 at 4:23 PM, TheDumbMoney (50.08) wrote:

Also there's a major shakeout coming in the solar industry.  Solyndra and FSLR's implosion are not the end.   I understand the macro picture than the micro picture, so I'm not quite ready to pick losers.  But I think this is a sector to avoid over the next two years, as it has been over the past year, at least until we get a clearer picture of what future government subsidies of solar power are going to be.  Just one guy's opinion.

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#9) On April 03, 2012 at 4:35 PM, BMFPitt (75.92) wrote:

I bought some naked puts against RSH and rode it down from 21 to 13.  I should have let it ride, but I was getting paranoid about a buyout offer eating up a chunk of my gains.

I see no way that it will be in business in 5 years.

Best Buy will probably linger on for a while, but I doubt it will see 2020.

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#10) On April 03, 2012 at 7:09 PM, TheDumbMoney (50.08) wrote:

Hovnanian?

First Solar?

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#11) On April 11, 2012 at 2:06 PM, TheDumbMoney (50.08) wrote:

Sony?  More of an observation than a call.

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#12) On April 11, 2012 at 2:19 PM, dragonLZ (99.41) wrote:

dumberthanyouraveragegenius, I think you are getting carried away a little bit... :)

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#13) On April 16, 2012 at 4:04 PM, TheDumbMoney (50.08) wrote:

And....scene:

http://www.businessinsider.com/rim-hires-bankers-2012-4

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