No matter what happens in 2012, Netflix (NASDAQ:NFLX) and Research In Motion (RIMM) will go down as two of the most pathetic short stories of all-time. Interestingly, almost two weeks into the new year, traders and investors have bid NFLX and RIMM up by 33% and 13%, respectively, as of Thursday's close.
Holding all else constant (e.g., M&A; Reed Hastings and Whitney Tilson pump jobs; Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) going out of business), I consider both moves head fakes of the dead cat bounce variety.
While the most publicized, Netflix and RIM were not the only two stocks that got crushed over the last year. In this article, I consider seven of the worst performers over the last 365 days and discuss reasons why you should not expect considerable recoveries in 2012.
RadioShack (NYSE:RSH), Staples (NASDAQ:SPLS) and Best Buy (NYSE:BBY). Yesterday, I used Jason Calacanis's excellent article about Amazon Prime to help make the point that not only will Amazon's stock soon become a buy again, but it, along with Apple and Google, will, within several years, if not months, run the entire world. Shortly thereafter, fellow Seeking Alpha contributor Hedge Fund Trading Academy likened Amazon to the Star Wars' Death Star in a thoughtful and well-written article.
Both Calacanis and HFTA weave a narrative that I can get with. Calacanis listed several companies and brands that he expects Amazon to marginalize or eliminate, while HFTA noted:
All (Amazon needs) to do is flip a switch, and entire industries are vaporized. Bookstores? Flip a switch, and bye bye Borders Group and Barnes & Noble (NYSE:BKS). Flip another switch, and bye bye electronics stores like Best Buy (BBY) and video game stores like GameStop (NYSE:GME). I have Amazon subscriptions that deliver everything from toothpaste to chocolate to office supplies every month. Bye bye Target (NYSE:TGT) and Wal-Mart (NYSE:WMT). Bye bye Office Depot (NYSE:ODP), Staples (SPLS) and OfficeMax (OMX).
I don't agree with all of the names on that list. And HFTA lost me when he started bagging on Apple and Italian urbanism, but I agree with his (or her) overarching point wholeheartedly.
Amazon reinvented retail. The response from the rest of the sector: Amazon does not play fair. I've written somewhat extensively about ineptness at Best Buy, but they're not the only company that lacked, and apparently still lacks, the vision and innovation to compete with Amazon. Two others that come to mind first - RadioShack and Staples.
There's a reason why BBY is down 29%, RSH decreased 39% and SPLS dropped 34% over the last year. And that's because they have no answer to the most important questions facing 98% of retail today: How do we set ourselves apart from Amazon? How do we reinvent retail so that people not only want to walk into our stores, but spend time and buy things in them? And how do we do this without pulling a Sony (NYSE:SNE) and flat ripping off Apple?
If you do not have high-end, high-value, exclusive products to set you apart or you cannot provide an actual experience, Amazon is about to put you out of business or assign you to little more than a below average existence. The easiest example, Apple, has both. An Apple store is like a Starbucks (NASDAQ:SBUX) or McDonald's (NYSE:MCD) that sells lots of expensive cars to people who collect expensive cars.
While I do not expect all of retail to watch Apple and do likewise, I would have expected something more than the mere continuation and proliferation of the status quo - sterile and soulless stores that use the same merchandising techniques and the same logistical processes that we've seen for decades.
Amazon visioned the future of retail and made it so. Apple took what was available and reincarnated it. Radio Shack, Staples and Best Buy, for all intents and purposes, did nothing. As such, don't expect much from either name in 2012.
Speaking of Apple ... Hewlett Packard (NYSE:HPQ). HPQ tanked by 40% over the last year. The company's we're out of the PC business ... well, on second thought, we're not flip-flop was a costly one. New CEO Meg Whitman effectively gets stuck with former CEO Leo Apotheker's $11.7 billion Autonomy mistake.
This will be a short section because HP simply does not have an answer to Apple. And that's all that matters. Sluggish PC sales dictate what happens to this stock. Everything else is pretty much irrelevant.
It the same old story as in retail; HP and other computer/gadget companies have done absolutely nothing but feebly follow Apple's lead. Instead of dictating the direction of an industry, HP put out an inferior tablet and will go the way of everybody else with an unimaginative "ultrabook." Once the CES geek convention in Las Vegas ends, the euphoria surrounding HP and everybody else's answer to Macbook Air will wear off.
Honda (NYSE:HMC) and Toyota (NYSE:TM). Over the last year, it sure felt like I was hardly seeing Civics, Accords and Camrys in my neighborhood. Same goes for the highways and while traveling. These once-popular models have been replaced by Ford's (NYSE:F) Focus and Fusion and Nissan's (OTCPK:NSANY) Altima and Versa.
Generally, I need more than anecdote. In this case, however, the numbers bear out the trend I thought I was seeing over the course of 2011.
Of course, the earthquake and tsunami in Japan contributed to Honda and Toyota's woes, but, at day's end, both companies appear to have fallen into somewhat static modes with their core brands. Meantime, Ford, Nissan and upstarts like Kia (OTCPK:KIMTF) stepped up their games and impressively increased sales almost across the board.
HMC and TM each dropped 19% over the last year. While both have bounced to kick off 2012, I'd rather put my money in F, particularly if it can close above $12.00 for a few more days in a row, and NSANY.PK.
Arbitron (NYSE:ARB). Arbitron measures radio audiences and delivers the ratings results to stations across the country, who are owned by a handful of companies. Herein lies the problem. Consider the following section from the company's most recent quarterly report:
Click to enlarge
That's not encouraging if you're an investor. And don't expect much to change on that front. It's not like the radio industry will generate fresh new customers anytime soon.
The recent move by Arbitron to discredit Pandora's (NYSE:P) monster numbers smacks of a company between a rock and a hard place. It does not want to alienate the customers (large terrestrial radio companies like Clear Channel (CCMO.PK)) that provide it with "a high level of contract renewals" so it goes on the defensive.
It would be encouraging if Arbitron actually did its job rather than cover its butt. Investors want companies like Arbitron to embrace new media and find ways to honestly and accurately measure the traditional and Internet radio spaces. Until something of the sort happens - and don't expect it to come anytime soon - you should not expect a performance much better than the 13% drop ARB gave the street over the last year.
Additional disclosure: I am long NFLX June $40 put options.