By Larry Gellar
A new article from Business Insider predicts that a number of brands will disappear in 2012. Let’s take a look at the most interesting 5 to see if any of their stocks should be bought at rock-bottom prices:
While Eastman Kodak Co. (EK) traded for over $5 a share a year ago, the stock price is now down to a measly 37 cents. In fact, The Wall Street Journal is reporting that the company is planning to file for a Chapter 11 bankruptcy in the event that it can’t sell its digital patents. While the digital patents might raise enough money to keep things going, the backup plan is to use debtor-in-possession lending while the bankruptcy is sorted out. Essentially, Kodak’s problem is that the once enormous company has too many costs to sustain its now small revenue. One reason Kodak is having trouble securing financing is because it is uncertain that even a capital infusion can turn things around. Regardless, Kodak’s patents are probably valuable to some company out there, and the investment bank Lazard (NYSE:LAZ) is trying to find a buyer. In the meantime, three of Kodak’s directors have stepped down, perhaps a sign that some at Kodak are simply giving up. As for cash flows, Eastman Kodak had $400 million flow out during 2010, and $762 million flowed out during the first 3 quarters of 2011. Operating cash flows have been negative during that time, and the debt tally is currently at $1.57 billion. As we've noted, Kodak's only real asset at this point is its patent portfolio.
Sears Holdings Corporation (NASDAQ:SHLD) was trading for over $90 last February, but now the stock price is under $30. Sears and Kmart stores around the country are being closed to try to get costs under control, but the Sears brand has simply lost its focus. On the other hand, some technical factors suggest that Sears could rebound. The stock is trading near all-time lows, and options activity is somewhat bullish. Meanwhile, one writer at Forbes is speculating that Sears could go the route of Berkshire Hathaway (NYSE:BRK.B). The idea here is that Berkshire Hathaway was at one time a not very profitable company that would later expand (very) far beyond its roots. Sears too is not very profitable, but Chairman Edward Lampert may be able to use the company’s incoming cash flows to make investments in more lucrative businesses. Additionally, the Sears brand is still valuable to some consumers out there who can remember the stores were a bit more fashionable. Regardless, Sears did just receive a key downgrade from S&P – that agency now has Sears bonds rated at CCC, or junk in other words. One problem is the company’s poor operating margins, which are a mere fraction of other retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT).
Avery Dennison Corporation (NYSE:AVY) traded for over $40 back in June, but the stock price is now below $30. Many consumers have used Avery Dennison’s office products, but the company actually just sold that unit (and one other one) to 3M (NYSE:MMM) for $550 million. That means the company’s focus on medical products will increase, and Avery Dennison just released a body patch to track certain biological factors. Here’s what Christine Robins, CEO of Avery Dennison subsidiary BodyMedia, had to say: “By shrinking the size, price and wear-time of our body monitoring platform to provide a snapshot of someone’s lifestyle, this patch opens the door to wider use of wearable sensor technology to manage and improve many different areas of health.” Compared to similar companies like 3M and Bemis (NYSE:BMS), Avery Dennison’s price to earnings and price to sales ratios are a bit low. Margins help to explain that though – those numbers for Avery Dennison are only 26.82% gross and 6.50% operating. As for cash flows, $10.6 million flowed out during 2010, and $7.8 million flowed out during the first 3 quarters of 2011. That’s been mostly caused by capital expenditures though, and Avery Dennison’s asset sale to 3M should reverse the cash flow situation. Dividend investors should note that Avery Dennison has a dividend yield of 3.40%.
Unlike other stocks on this list, Yum! Brands, Inc. (NYSE:YUM) has actually done well lately. The stock traded for below $50 during parts of August and October, but now the stock price is almost at $60. Yum! owns KFC, Taco Bell, and Pizza Hut, and all three brands are doing quite well. Customers like these chains for their delicious food and low prices. The problem though is that the Yum name isn’t doing anything. In fact, most consumers probably don’t know that KFC, Taco Bell, and Pizza Hut are all owned by the same company. Yum is also looking to make headway in China. In fact, the company just purchased a chain of hot-pot restaurants called Little Sheep. Here’s what Jing-Shyh Sam Su, CEO of Yum! Restaurants China, had to say: “We have a strong commitment to the China market and to the Little Sheep brand. We are confident we can further strengthen Little Sheep’s brand, business model and market position.” Nonetheless, we think these two restaurant operators can co-exist successfully. Yum! has a significantly lower price to sales ratio than McDonald’s (NYSE:MCD), partly because McDonald’s boasts significantly better margins. Those numbers for Mickey D’s are 39.58% gross and 30.49% operating. Dividend investors should also note that McDonald’s dividend yield is about 1 percentage point higher than Yum!’s.
Like Yum!, KeyCorp (NYSE:KEY) isn’t in dire straits. However, consumers who are already suspicious of the financial industry might not appreciate the KeyCorp name when most of its business comes from the more plainly stated KeyBank. Although the bank was trading for below $6 a share in September, the stock price is now almost at $8. As described here, analysts are becoming increasingly bullish about KeyCorp. The average analyst rating right now is about halfway between Buy and Hold. For a small bank like KeyCorp, customer satisfaction is crucial, and survey results indicate that KeyBank is doing quite well in that regard. Here’s what Bill Koehler, president of Key Community Bank, had to say: “These customer satisfaction scores affirm our client-focused business model, and validate our customers' belief that they receive value from Key's advice, service and products.” Compared to U.S. Bancorp (NYSE:USB), KeyCorp offers lower price to earnings, price/earnings to growth, and price to sales ratios. KeyCorp’s operating margin is a bit lower than U.S. Bancorp’s though, and KeyCorp actually has a year-over-year quarterly revenue growth of -2.20%. As for cash flows, KeyCorp had $193 million flow out during 2010, and $550 million flow in during the first 3 quarters of 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.