Sell These 5 Stocks on the Verge of Bankruptcy

— Bret Jensen, Editor, Blue Chip Gems, Biotech Gems, Small Cap Gems

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.

From our 2014 Bankruptcy Watchlist, two names on the list are already in bankruptcy, Dendreon, and Walter Energy. Then there’s The Bon-Ton Stores, Inc. (NASDAQ: BONT), which has fallen 85% since we highlighted it, and GameStop (NYSE: GME) is off 35%.

bankruptcy-400x200 We also highlighted retailer RadioShack, which is now bankrupt and gave readers some big time food for thought, as we mentioned the possibility that US Steel (NYSE: X) might crumble under its pension liabilities. US Steel is over 100 years old and was once the largest company in the world. Shares are down 55% since we took it to task.

And the Bankruptcy Watchlist for 2015 was just as juicy, calling out retailers and various oil-related companies. hhgregg (NASDAQ: HGG) is off nearly 65% since then, and then there are the oil companies Transocean (NYSE: RIG) down 47% and Halcón Resources Corporation (NYSE: HK) off 96%. There’s also Seventy-Seven Energy which went bankrupt but not before losing over 90% of its value.

Our apparel retail calls were spot on, with Cache and Pacific Sunwear going bankrupt and the likes of bebe stores (NASDAQ: BEBE) and, Aeropostale (NASDAQ: ARO) both falling more than 90%.

With all that in mind, let’s have a look at the next round of companies that could go bankrupt:

No. 1 Company to Go Bankrupt: GoPro (NASDAQ: GPRO)

We alerted our readers on January 9, 2012 that Eastman Kodak was on the verge of bankruptcy, just a week before the company filed for bankuptcy.

GoPro could be the next Kodak. The action camera company, GoPro, helped push the 125-year-old Kodak into bankruptcy, yet it looks like its own product won’t hold up for the long-term. The high priced, $200 plus cameras that are meant for the extreme sports goer are hitting their saturation point.

In December, Morgan Stanley and Citigroup joined other Wall Street firms in downgrading the stock, and that was before the company’s abysmal earnings report in late January. GoPro’s market cap has now been slashed almost 80% from its peak.

The one thing going for it is the no-debt balance sheet. However, competition remains high in the camera related space and it looks like the mobile phone will remain the ultimate “camera.” Ultimately sales will continue to fade and the one-hit wonder company will fade to black.

No. 2 Company To Go Bankrupt In 2016: 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.

No. 3 Company To Go Bankrupt In 2016: 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.

No. 4 Company To Go Bankrupt In 2016: Shutterfly (NASDAQ: SFLY)

Shutterfly’s core product just can’t stand the test of time. The internet-based picture publishing company is carrying nearly $400 million in debt and its net income has been falling for four years.

It’s lost over $30 million over the last twelve months. So, while it’s selling its photos and greeting cards, it’s just not making enough money doing it. The likes of Instagram, Facebook (NASDAQ: FB) and Snapchat have rendered Shutterfly useless – hence its downward trend in customers. Free photo sharing and photo storage services will eventually crush Shutterfly in 2016.

Now, the biggest risk to betting on a company bankruptcy is that in rare cases, they make a successful pivot. That’s what’s keeping Shutterfly out of bankruptcy for now. 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.

No. 5 Company To Go Bankrupt In 2016: Sears Holdings Corporation (NASDAQ: SHLD)

This was a name we profiled in the 2014 edition and it’s lost half its market value since then and has lost another 30% more of its value in 2016. We’re looking to circle back around on the name in hopes that 2016 marks its final days. Sears has cycled through all the catalysts it has available, which includes spinning off all its owned real estate.

But same-store sales continue to fall at both Sears and K-mart. This comes as the likes of Target (NYSE: TGT) and Amazon.com (NASDAQ: AMZN) are getting more aggressive with offers that overlap Sears products. Sears has a $1.3 billion market cap and $3 billion in debt. Meanwhile, it hasn’t made any money on an annual net income basis since 2011.

Its free cash flow is a negative $1.7 billion over the last twelve months. 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?

At some point, it’s more efficient to shut the company down and sell the scraps. 2016 should be that year.

BONUS Company To Go Bankrupt In 2016: 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.

It seems like every day I get an email from someone telling me which stocks to sell. Stocks like the ones we just discussed above.I guess they’re just trying to keep us investors alert to the very real threat of certain highly touted stocks. That’s the same reason I’m sharing with you today my list of stocks to avoid.

But, what should you be buying? You are buying stocks now, right?

A lot of investors have sold their positions over the past few months and are sitting on cash.

That’s fine if you’re solely worried about losing money, but what about making money? Isn’t that the whole reason for investing?

Otherwise, might as well put your money in a bank savings account paying 0.05% (or less!).

In response to investors complaining they only hear about stocks to sell and not enough on ones to buy, especially in this market, I’ve just recently released my top 3 buy and hold Forever Stocks for 2016.

These are solid, core holdings in my own personal portfolio and ones that you should be able to use as the foundation for a recession proof… crash proof… fool proof system for making every dollar invested work harder for you.

My favorite of the 3 Forever Stocks might surprise you.

My favorite of the three is not some fly by night whiz-kid tech stock with a business plan that was sketched out on a cocktail napkin or high beta biotech that might make your stomach churn.

Rather, this fixture of the American economy opened its doors just a few short years before the civil war and became a publicly traded company in 1922.

It’s survived eight wars, three depressions, 24 recessions, and four panics since opening its doors and today is considered by many as best in class in its sector.

Plus, it’s paying a 4.25% dividend yield while we wait for either one of two catalysts to propel the stock price even higher.

I’ve just released a report on this company that explains in detail how these catalysts have already kept the Forever Stock‘s price moving upward even as the broader markets whipsaw on a daily basis. Plus how one catalyst in particular will be a game changer that could double the stock price before the end of the year.

And as a bonus, there are two other stocks in my new report you’ll want to seriously look at right now. They’re what I call Forever Stocks because once you buy them you’re going to want to keep them for a very, very long time.

Click here for full details.

5 Stocks to Sell on the Verge of Bankruptcy Report