These stocks have serious red flags and are ticking time bombs in your portfolio. Several companies from our 2014 and 2015 watchlists are already bankrupt or very close, and the companies profiled today are likely on the same track. Dump these losers immediately.
Bankruptcy is a scary thing but a natural part of the economic cycle. Some companies take on too much debt at an attempt to grow, while others simply see their products become obsolete. Either way, they meet the same fate as investors are left owning a stock worth $0.
So, through the years we’ve put together bankruptcy watch lists to help investors avoid just that. But instead of rehashing the same names you hear in the media, such as BlackBerry (NASDAQ: BBRY), we generally take a more aggressive approach.
In some cases, sticking our necks out, naming Sony (NYSE: SNE) and GameStop (NYSE: GME) as bankruptcy-bound stocks. Now, those will be multi-year bankruptcy stories that haven’t played out yet, but many names on our watchlist have already come to pass.
In 2014, we profiled the likes of Dendreon, Walter Energy, and RadioShack, all of which are now bankrupt. Then there was 2015, which was packed with oil company and apparel retailer predictions. Of those, the likes of Halcon Resources, Paragon Offshore, Seventy-Seven Energy and Aeropostale and are no longer with us.
Now on to 2016. In January, we put together our annual list of bankruptcy predictions and nearly three-quarters of the way through the year, it is time for a ‘check up.’
So far we’ve seen two of our five bankruptcy names go bye-bye — including Pacific Sunwear and Energy XXI. The other retailer that was on our 2016 bankruptcy list, Sears (NASDAQ: SHLD), has fallen 30% since we called the name out.
Sears has been losing money for years, managing to stay alive this long by selling off real estate and other businesses. However, it looks as if Sears has run out of valuable real estate and is no closer to stemming losses in its core retail business. As Ernest Hemingway said, a man goes broke two ways, “Gradually and then suddenly.” How much longer can Sears tread water?
Now, the biggest risk to betting on a company bankruptcy is that a buyout could happen, or in rare cases, they make a successful pivot. That’s what’s keeping the other two names, on our list alive — Shutterfly (NASDAQ: SFLY) and Sprint (NASDAQ: S). Shutterfly, despite increasing competition from other photo sharing services, is still alive. This comes as Shutterfly has gotten investors’ hopes up by announcing a shift away from desktop and toward mobile. But this appears to be more a hype tactic than a full blown saving grace.
Then there’s debt-laden Sprint, where investors are hoping that T-Mobile (NASDAQ: TMUS) will make another takeover approach. Still, Sprint continues to lose money and the wireless market in the US is hitting saturation. Meaning, it’ll have to take market share from the likes of AT&T (NYSE: T) and Verizon (NYSE: VZ), which is difficult and costly.
Now, let’s look at some new names we can add to our bankruptcy watchlist:
Bankruptcy Stock No. 1: Fitbit (NYSE: FIT)
Fad products are a great place to look for companies that might be headed for bankruptcy. GoPro (NASDAQ: GPRO), which has been a ‘bonus’ bankruptcy pick of ours, has seen its stock drop by 60% since coming public in 2014
Another stock fitting the fad mold has been Fitbit (NYSE: FIT), which has lost 50% of its market value since coming public last year. This comes as, not only is competition heating up, but technology is iterating so fast that new ways of tracking fitness are already hitting the market just a couple years after Fitbit came public. However, buyout potential and no debt keep both companies alive for now. But Fitbit is still a single-purpose device company, putting the odds against the company lasting.
Bankruptcy Stock No. 2: Office Depot (NYSE: ODP)
Retail is no stranger to bankruptcies these days, and while apparel has seen some of the biggest fallout, office retail is looking a bit uneasy now. This comes after the mega-merger between Staples (NASDAQ: SPLS) and Office Depot was rejected by regulators. This leaves Office Depot to fight for survival against not only Staples and Wal-Mart (NYSE: WMT), but retail-killer, Amazon (NASDAQ: AMZN).
But it’s not just Amazon that’s impacting Office Depot, it’s also the fact that much of the office has been replaced with technology — everything is being digitized and computerized.
With that, Office Depot has seen its operating cash flow fall over the last decade from $800 million per year to just $100 million. Meanwhile, its debt load has only grown, more than doubling over that same period to $1.5 billion.
Bankruptcy Stock No. 3: JC Penney (NYSE: JCP)
It’s been ‘easy pickings’ when it comes to bankruptcies in apparel retail and we have yet another name we’re adding to the watchlist – JC Penney (NYSE: JCP). JC Penney has been stuck between $6 and $10 a share for three years now. They’ve tried closing stores to focus on the best-performing ones, but competition and the rise of fast fashion retailers like H&M continue to weigh on the company.
Sales have fallen over 25% in the last five years and it’s still losing over $300 million a year — something it has done for nearly five years straight. Let us not forget its $5 billion debt load either — a debt that’s jumped more than 50% in the last five years.
In the end, knowing which companies will ultimately go bust is anyone’s guess. But we can make informed decisions based on the company and market trends to help save some heartache and money. The three companies above are new names to our bankruptcy watchlist because they show the signs of being bankruptcy-bound.
Avoiding these stocks should be every investors first course of action and that starts with investing in high-quality businesses with stable markets with the potential for growth. Many investors already do this when they say they’re investing in blue chip stocks.
But when it comes to investing in safe, blue chip dividend stocks, I tend to think differently than the majority investors. That means that I don’t settle for average yields and average returns. When I invest in a blue chip stock, I want a safe place to invest my money that also has the potential to pay me high returns and an above-average dividend yield.
Hunting down stocks like these is not easy and it takes me many hours of research to select the stocks with the best chances to outperform their blue chip brethren. My latest research has led me to create a new report titled “My Top 3 Buy and Hold Forever Stocks,” that features my top 3 stocks to buy today and earn big returns for as long as the market is still open.
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