Presented here are short ideas for 2013. These are companies that face headwinds in their sectors, appear to be overvalued, or are facing margin compression.
1- Panera Bread (PNRA)
Panera Bread operates in the "fast casual" niche and offers a mix of traditional fast food and more upscale casual dining. The company has benefited in the past from the strong secular trend of healthy eating. As the trend continues, however, I believe people will begin seeking "real" healthy food and begin to prepare more food themselves or purchase from local or genuinely healthy restaurants. The company also faces more pressure from the 800 pound gorilla in the industry, McDonald's (NYSE:MCD), as they have made efforts to appear healthier and have introduced salads and healthier options. Most other fast food restaurants have made similar changes like McDonald's and their lower cost options could eat into Panera's customer base. The company has recently fallen off of its 52- week high of $175, I believe it still has room to fall.
I believe Panera's inputs will get more expensive in the next 12 months due to the effects of the droughts and rising commodity prices in 2013. The US Drought Monitor reported 88% of corn and 87% of soybean crops are in areas that were plagued by drought. The higher prices will put pressure on Panera's margins and as they are not in a position to raise prices, the higher input prices will eat into their profits. Chipotle (NYSE:CMG) recently faced the problem of higher input costs, with their food costs rising to 33% of sales, which caused their EPS to fall from the analyst estimates of $2.09 to around $1.95.
Longer term, over the next 2-3 years, America expects to use more and more corn for ethanol, of which, 40% of our corn crop goes to ethanol. This and the extended effect of QE will most likely continue to drive commodity prices higher.
2- Research in Motion (RIMM)
This stock has been driven up over 90% on hopes that the Blackberry 10 will turn around fortunes for the company. The Blackberry 10 is literally the only catalyst the company has and we live in a time where products are old news in just a few months. Apple is expected to sell nearly 50 million iPhone 5s during the holiday quarter. This is projected to kill analyst estimates yet the stock has slid over 15% during the last three months. I see RIMM not being able to sell as many Blackberry 10s as projected, sending the stock back into the high single digit territory. Even if the Blackberry 10 does meet or excel estimates, RIM has nothing in the pipeline and is notoriously slow at bringing products to market.
Even if the Blackberry 10 is a success, the company and stock has long term problems. Again, it has nothing in the pipeline, and a BB10 failure could potentially cause the companies cash position to dry up. The smartphone market is ultra-competitive and Apple (NASDAQ:AAPL) and Android have cemented themselves as #1 and #2, the fact that RIM has not released a Blackberry recently could cause consumers that were once loyal to them to have already switched to Apple or Android and do not want to go through the hassle of switching phones again. There is also the very real possibility that BB10 is simply not a good device and the market it will leave it, and the stock behind.
3- hhgreg (HGG)
This stock has a high short float and has fallen from its highs but again I feel this stock has room to fall farther down as it has been trading in a range for the last three months and I believe it will break through this range moving downward. The company sells big ticket items and faces much competition from companies such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) on the ground and from Amazon (NASDAQ:AMZN) online.
The company has expanded rapidly recently, at a time when many other companies have shifted from big box expansion to online and e-commerce presence. Although hhgreg does have a relatively strong balance sheet, it is a big box that has expanded rapidly, just not in the areas that will be around in 5 years, I see this company going the same was as Circuit City and Best Buy (NYSE:BBY).