Seeking Alpha
Contrarian, macro, hedge fund manager, emerging markets
Profile| Send Message|
( followers)

Technology and the markets create a variety of new products that improve our standard of living every day. However, the process of creative destruction eliminates companies whose products are no longer needed by society. Some recent rapid examples of creative destruction are Research In Motion (RIMM) and Cisco (NASDAQ:CSCO), who show how quickly a company can lose its edge. Below I list three companies that make good shorts because they are trapped within obsolete industries. Unless they restructure drastically, each company will eventually reach the brink of bankruptcy.

The Washington Post Company (WPO)- The Washington Post is a media company that is well known for the newspaper that holds its namesake. Unlike competitors such as the New York Times (NYSE:NYT) and Gannett (NYSE:GCI), The Washington Post has successfully diversified from the fading print media industry (20% of revenues), to the for-profit education sector through its Kaplan division. Unfortunately, the for-profit college business is in just as weak shape in the long-run as the newspaper business. Regulation to student loan distribution and the lack of a return on investment from a Kaplan degree will hurt this side of the business, which composes of 58% of revenues. I recommend shorting WPO because its main business drivers are both victims to severe decline. However, I would wait until the stock falls below its $405 support.

RadioShack Corporation (NYSE:RSH)- Radioshack is a retail company that operates its own stores selling specialty electronics and peripherals. It also operates kiosks (such as for sprint mobile phones) within larger retail stores such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). The problem with RadioShack is it lacks any big time unique products that cannot be offered at competing electronic stores such as Best Buy (NYSE:BBY), that offer better selection and big ticket items such as flat screen televisions and video game consoles. 38% of its business is also determined by wireless phones, which have reached their maturity phase in sales in the U.S.

Westwood One (NASDAQ:WWON)- Westwood One is the leading company in the terrestrial radio industry, with its programming being broadcast to over 5,000 radio stations nationwide. Unfortunately, radio is second to newspapers as the medium most weakened by the internet. With mp3 player attachments to modern speaker systems and cars, nobody needs to listen to the radio. With the combination of downloaded music to replace FM radio and podcasts to replace talk radio, drivers no longer need to listen to the radio for audio entertainment. As a result, radio is in terminal decline. Financially, the company is in shambles as losses equal over 25% of the company's market cap, and are only expected to decline further as less people listen to radio advertising. With a debt level of $289 million (market cap is ~ $130 million), WWON will have a hard time paying its creditors.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Going the Way of the Buggy Whip: 3 Obsolete Technologies to Short