Investors are optimists. When people invest money it's because
they believe that the underlying business will expand, leading
them to a profit.
However, some investments don't work. And some companies will
never expand operations.
Over time, these laggards may abandon their business strategy and
seek bankruptcy protection. Though bankruptcies typically happen
to small companies, large ones can fold too. In fact, Eastman
Kodak and Patriot Coal were two large companies that filed for
bankruptcy in 2012.
When a company files for Chapter 11, investors are wiped out. The
Hundreds of small companies are likely to cease operating in
2013. However, I've uncovered three large ones that could
disappear sometime next year ...
One is a retailer that's been in business since 1982. But the sun
is setting on this trendy clothier.
The second company is a household name. In fact, one or more of
its enhancement products have no doubt been in your home at some
The third company was a pioneer in electronics. However, its
business model couldn't keep up with the times and shareholders
will ultimately pay the price.
Good companies operate in growing industries. The three companies
listed below operate in either a dying or ultra-competitive
Good businesses increase sales, resulting in positive earnings.
Though two of the businesses below produce positive earnings,
they're decreasing at a faster rate than revenue.
A balance sheet isn't important to many good businesses. However,
when times are tough and income stops growing, paying off a huge
debt balance is a major hurdle.
I evaluated each of these three companies based on their
industry, their income statements and their balance sheets. Each
of these companies is weak and getting weaker based on those
Here are three stocks that may not last through 2013:
Pacific Sunwear of California (
is in disarray.
Retail is a notoriously tough business and it takes a strong
product and brand to survive. Long ago, Pacific Sunwear had both.
Its California style and Newport Beach following made it a
favorite among locals and consumers across the country.
However, sales have been in a constant decline after peaking in
2007. Not only did sales peak more than five years ago, the
company hasn't been able to make a profit since 2007. In fact,
losses slowly increased each year since 2010.
The losses are that much worse because PSUN has a $75 million
debt balance and rising costs.
The combination of declining sales and five years of
may put this company to bed in 2013. PSUN is unlikely to survive
for more than 12 months.
Avon Products (
isn't looking too pretty anymore.
Unlike Pacific, Avon actually has positive earnings. However,
sales growth is pathetic and net earnings are dropping. A meager
growth to sales ratio and the contraction of income are signs of
poor management, which is why AVP is unlikely to survive 2013.
Former CEO Andrea Jung was finally ousted last year. But the
damage is too great for the company to recover from, primarily
because new CEO Sherilyn McCoy has limited experience running a
Avon carries more than $3.5 billion in debt. That's about a
third of its market capitalization.
The first sign that AVP is in trouble will be a dividend cut.
Once that happens, expect a bankruptcy announcement to
Best Buy (
Its survival will depend on this holiday season. If the company
can muster enough sales after Thanksgiving (which I doubt), then
it may last more than another year.
However, the dominance of online retail has eliminated the need
for BBY to exist. Moreover, consumer spending is already weak,
making now a difficult time for any store operator, much less a
brick-and-mortar dinosaur like BBY, to make headway.
Sales growth has been virtually non-existent over the past three
years and earnings have constantly sunk lower. A $2.1 billion
debt balance doesn't help its long-term prospects either.
has eliminated BBY's best advantage - price. BBY could have more
left in the tank, but its
days appear numbered
These three companies must stage a successful turnaround soon. A
few more quarters of decreasing earnings may spell the end for
one or more of the above stocks … likely within the next 12