Stocks Ripe for Sell-Offs

It is hard for a company to have such poor prospects that its shares trade near a 52-week low while the overall stock market stands at multiyear highs. But some of these public corporations, which have been battered by Wall St., have been battered for very good reasons. And many of those reasons will become worse as 2012 wears on. That keeps the shares of these firms vulnerable to downturns, either based on their individual earnings or a drop in the economy that affects the sectors in which they operate.

24/7 Wall St. picked five companies at extreme risk for sell-offs.

JCPenney Co. Inc. (NYSE: JCP). The myth that former Apple Inc. (NASDAQ: AAPL) retail chief Ron Johnson can improve the already dismal results of the retailer is already gone, as he approaches his one year anniversary as CEO. The firm’s shares trade at just below $26 against a 52-week high of $43.18. Sales fell 23% in the most recently reported quarter to just above $3 billion, with same-store sales down 21.7%. Results for Internet sales, crucial to the future of all large retailers, fell more. Johnson has asked investors to be patient, but the company approaches the cliff of 2012 holiday sales. If it does not show upward momentum during the most critical part of the year, it may as well write off 2013.

Avon Products Inc. (NYSE: AVP). Another large public company with new management, Avon shows little signs of recovery. And there is no reason to think new CEO Sherilyn McCoy will have any success soon. She replaced long-time CEO Andrea Jung as chief executive on April 23. Jung nearly wrecked the company with a random set of expansion. She hoped to stay on as executive chairman, but was unceremoniously dumped from that job recently. Investors have not been heartened by the management change. Shares are down 27% in the past six months, while the S&P 500 is up 5%. Credit rating firm Fitch recently revised its outlook on Avon to “negative.” In its note on the matter, Fitch analysts commented:

The Negative Outlook reflects that Avon’s turnaround will take more time than Fitch initially expected, the company continues to lose representatives, and profitability may be pressured versus prior years leading to a transition period that is likely to extend well past 2012.

Nokia Corp. (NYSE: NOK). Nokia trades at $2.68, compared to a 52-week high of $7.38. The company continues to bleed market share, revenue and workers as its struggles to enter a smartphone market controlled by Apple and Samsung. As a matter of fact, it recently lost its long-held crown as the world’s largest handset company to Samsung. Nokia’s new Lumia smartphone line has not elicited much demand from the market. Problems with sales have been worsened because the launch of the new product came so close to the release of the wildly popular Samsung Galaxy S III and Apple iPhone 5. Nokia has bet its future on a partnership with Microsoft in which the handset company will use the Windows mobile OS in most of its smartphones. The demand for that OS compared to Apple’s iOS and the Google Inc. (NASDAQ: GOOG) Android system has been poor

Dell Inc. (NASDAQ: DELL). Dell suffers from two considerable problems. The first is well known. The personal computer has become a commodity product, with the exception of the Apple Mac. Computing has moved quickly to tablets and smartphones, and Dell has no place in either market. As PC sales falter, the market share crown in the industry has moved to Lenovo in China. U.S. firms, particularly Dell, will have trouble gaining momentum back, particularly since much of that momentum has been gone for years. Dell’s second problem is its lack of diversification outside its core PC and server markets. Its services and software operations are less than 25% of revenue. Dell trades at $9.76, just above its 52-week low.

Advanced Micro Devices Inc. (NYSE: AMD). The second largest chip maker recently announced it expects revenue from its most recent quarter to be down 10%. The market punished shares, pushing them to a 52-week low. And things will get worse. AMD competes against the much larger Intel Corp. (NASDAQ: INTC), which has problems of its own as it tries to move from its traditional PC and server markets into portable devices. Even with all of its muscle, Intel has found the going tough. AMD has none of Intel’s balance sheet or earnings strength, making a change in business models all the more difficult. As a matter of fact, AMD has virtually no presence outside its traditional business, at a time when tablet and smartphone sales are surging. AMD shares trade at $2.75, a 52-week low, against a high of $8.35 for the same period. The long-term trend of the shares is much worse. AMD stock traded for $14 five years ago.

Douglas A. McIntyre