The three best – and worst – stocks of Obama’s first 100 days (PART II)
Today's Financial News - Posted January 22, 2009
The markets are taking another nosedive on the news that some of the nation’s largest companies are doing worse than expected. That means Wall Street is even riskier. To eliminate much of the risk, avoid these three stocks.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is only day number two for the Obama administration and already the economic pressure is growing. It looks like his pick for Treasury Secretary, Tim Geithner, may not get confirmed as quickly as many would like. And cries that the new president’s stimulus package will not be nearly enough are getting louder and louder.
So far… no change. But we are hopeful.
What’s more, the latest round of economic data shows no signs of economic rebound. New jobless claims rose by a surprising 62,000 claims to reach 589,000 for the week, the highest level since 1982.
Do not expect a sudden wave of hiring from the construction industry. After its worst year in history, the new-homes market continues to hit new lows. Housing starts dropped by over 15% to break November’s low and set a new record with just an annual rate of 550,000 started last month.
That is not the kind of news that lights a fire under Wall Street.
But it is the kind of news that forces us to glance a critical eye towards the investing world. With the equities market once again embarking on a wild up-and-down ride, investors absolutely have to know which stocks are safe and which ones will destroy what’s left of their portfolio.
Yesterday, I revealed the three companies that offer the best shot at market-creaming rewards during the first 100 days of Obama’s presidency. Today I will list the three stocks that likely will not be around to see the end of his reign.
If you think it was tough to find three picks with the potential of handing investors double-digit gains over the next three months, try narrowing the field of losers to just three.
The only way I could do it was by limiting my search to the companies that stand a good chance of seeing their share price hit zero. Invest in these companies and you may not lose just a portion of your money, you may lose every single penny of it as an unprecedented wave of corporate bankruptcy plagues Wall Street.
Stop “hogging” the bailout line
The first company is a tough one for me as I have personal ties to Harley Davidson (NYSE:HOG). I grew up just a few miles from its largest factory, spent numerous nights discussing the world of business with some of its high-level engineers and operations managers and many of its union production-line workers are good friends of my family.
Needless to say, it is tough not to be an emotional investor when it comes to the motorcycle maker. But we cannot let our feelings get in the way, especially if we know it will cost us money.
Harley is affected by the same phenomenon destroying Detroit’s chances of success. Its union labor costs are higher than its competitor’s costs, demand for its products is plummeting, the company is riddled with over-capacity and the few folks that still want to buy a bike cannot get the credit they need.
Harley Davidson sells the ultimate discretionary item, coolness. It is one of a few products in history that allows a person to walk into a showroom a stiff, old square and walk out a leather-wearing, fear-inducing, badass.
But when the economy shrinks, fewer and fewer folks can afford to buy their coolness. That means Harley’s sales are dropping and its earnings plummeting.
We will see evidence of this tomorrow when the company releases its fourth-quarter earnings. After two quarters of disappo
inting results, there is no reason to believe the last three months were any better.
Analysts predict sales were down by 6% to just $1.3 billion. But thanks to high overhead and investment losses that drop in revenues will translate to a 26% decrease in quarter profits to just $0.58 per share.
With more than two million Americans losing their jobs last year, Harley will not see a quick turnaround in sales. Even worse, it will not get the federal aid like its headline-worthy big brothers in Detroit.
Finally, if it is considered a bullish signal when company insiders buy shares of their company, it is a horribly bearish sign when they jump ship. Investors should have seen the writing on the wall when two of Harley’s top officials, including its CEO, recently packed their saddlebags and rode their iron horses out of Milwaukee.
There is a strong chance that Harley’s future is far more bleak than its automotive brethren. That means its shares have even more room to drop.
Unless you take a short position, stay far away from this hog. It is headed to the slaughterhouse.
A hog goes… Winnie
If buying a Harley Davidson instantly makes you cool, I do not even want to think about what buying one of Winnebago’s (NYSE:WGO) aluminum homes-on-wheels makes you.
If you thought selling an overpriced motorcycle was hard in this economy, try selling an expensive, gas-guzzling vacation maker. Millions of Americans now have the extra time they need to take a road trip, but they are using it to send out their resumes, not touring from campground to campground
At the risk of sounding like a broken record, I have to tell you once again if you think the problems in Detroit are nauseating, you will have a seizure digging through Winnebago’s recent earnings reports. It is amazing the company has made it this far.
The company offers a wide range of motor homes that come with a price tag of $50,000 and up. If you want a half-decent touring unit, you better have a six-figure checking account or darn good credit.
Unfortunately, right now, few folks have either. And the folks that do are buying the discount yachts flooding the market, not “Winnies.”
Just about one month ago, Winnebago announced its fiscal first-quarter results. The figures were not pretty. In fact, the company’s CEO, Bob Olson, said, “This downturn has been one of the most difficult downturns that I have been associated with.”
Olson’s company announced a quarterly loss of $9.3 million after revenues fell by a whopping 68% to just $69.4 million.
Winnebago has already done just about all it can to prevent even larger losses. Over the last few years, it cut its workforce by 60%, it recently forced all workers, including C-level execs, to take a weeklong unpaid leave and it shutdown its production for two weeks.
All that is left to do is hope and pray there is a sudden revival in demand. But even with Obama’s stimulus package, which will likely put just a $500 tax rebate in consumer pockets, the likelihood of a Winnebago craze is not very high.
More likely, Winnebago will be forced to start piling up debt. Unfortunately, in this credit-tightened market, that debt will not come cheap. It may be enough to push the company’s head under water.
Industry-competitor Coachmen (NYSE:COA) recently bailed out of the RV business. Now it just manufactures housing and busses. Winnebago does not have that option. It has a very narrow product lineup.
That means you must steer clear of this company as its shares drive off a cliff. The stock is above $5 right now, but it will not stay that way for long.
Satellites dropping from the sky
Finally, if there is one company with shareholders desperately fearing the “B” word, it is Sirius XM Radio (NASDAQ:SIRI). The company’s debt threatens to bring it to its knees within the next month, yet so many investors continue to throw their money into the company.
They are making a huge mistake.
Sirius has an incredible debt load. It started with over $300 million in debt due in February. But thanks to converting that debt into dilution-inducing equity stakes, that figure is down to about $190 million.
If the company somehow manages to convince its remaining debt holders to convert their stake into stock (which is losing value by the second), Sirius still has nearly $600 million due later in the year.
If the company has to pull out all of the stops just to get through February, what can it possibly due to get itself out of the jam it faces later in the year? There are few options.
One option would be to increase revenues by raising prices, but the FCC says no way. The inability to raise its basic prices was part of the package that allowed Sirius and XM to merge last year.
The only way forward for this company is to renegotiate its expensive talent contracts and its incredible debt burden. The best way to do it is in bankruptcy court. That means today’s shareholders will see their position reduced to nothing.
Shares are already down to just $0.11 each. For investors that got in when they were trading for much more, the bottom does not look so far away. But if you get in at today’s prices, hoping for a rescue, you better be able to afford to lose your entire stake.
Sirius, in its current state, will not be around to see all of Obama’s first 100 days. It simply has too much debt and not enough options.
The nation’s economy is in rough shape. Investors are reeling in pain after last year’s losses. Avoid these three stocks like a mean dog with an attitude and take another look at the three companies I told you were worth buying. If you do, you have a very strong chance to avoid the incredible losses the market endured last year.
Obama promised us change. Act now or that is all you will be left with… pocket change.
Next Article: Universal healthcare, welfare, and lubejobs for all!
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