The market keeps proving me right.
Over the past year, I’ve been stressing the importance of stock selection.
Then yesterday, the global stock markets were down more than 2% over fears about the slowdown in China, the world’s second-largest economy – perfectly illustrating why I frequently call this a “stock picker’s market.”
In this kind of choppiness, you just can’t depend on the “market” to inflate your wealth. You have to make good choices about your stocks – and then about when to buy and sell them.
And that’s our goal here at Strategic Technology Investor – to unravel what’s happening in the world… and to find you ways to make money from that.
However, there’s a lot more to making money in tech stocks than choosing the right investments.
You also have to know which stocks to avoid. After all, no one wants to lose money chasing after overhyped stocks.
If current trends continue, expect to see a lot of hype from Wall Street about great “turnaround” investments.
Today I want to peer inside several turnaround prospects the Street is likely to peddle in the coming months.
On paper at least, they appear to be good candidates to come back from recent sell-offs.
Battling the Headwinds
And I think all five will do well not just in the year ahead but for the long haul as well.
While I’m still bullish about that “Team” and about tech investing in the New Year, as we’re already seeing, some headwinds will challenge our ability to make money.
Besides China’s slowdown and the renewed Saudi-Iranian conflict, interest rates are starting to rise. That could draw some money out of stocks and into bonds and the money market.
And the rising value of the dollar could dampen sales and earnings for companies with big offshore exposure.
Analysts at Goldman Sachs predict the dollar may rally another 10% to 15% from here, which would only put more pressure on our factories.
All that means this is no time to take a “flier” on stocks that the hucksters on Wall Street would have you believe will come roaring back.
Here are four “Tech Turkeys” to avoid in 2016.
Tech Turkey No. 1: IBM
When CEO Virginia Rometty took the helm of International Business Machines Corp. (NYSE: IBM) in early 2012, Big Blue was the fourth most valuable company in the world.
Four years, later, its market value has fallen by more than $70 billion (to a recent $139 billion). IBM isn’t even in the global top 20 anymore.
That underperformance is due to one simple fact: IBM has lost its edge.
IBM controlled 26.5% of computer server market at the end of 2013. That figure has fallen by half, according to the Gartner Group.
Cloud computing should have been a natural for the company. Yet IBM has just 7% of that market, according to InformationWeek.
The net result: On a year-over-year basis, IBM’s sales have fallen for 14 straight quarters. Now hunkering down, IBM is cutting expenses and buying back stock.
Tech Turkey No. 2: Valeant Pharmaceuticals
As this stock surged from around $25 in 2010 to more than $250 this past summer, investors were missing some clear warning signs.
Valeant Pharmaceuticals International Inc. (NYSE: VRX) made its name by acquiring under-marketed drugs with little or no competition. Once those drugs were in-house, the company pushed through massive price increases.
It now seems like a house of cards. Valeant recently disclosed that federal investigators are probing the company’s sales and distribution practiceswith the Centers for Medicare & Medicaid Services.
These accusations alone call the company’s core operations into question.
Investors are coming to realize another serious problem – Valeant put little effort into building out its own drug pipeline, the lifeblood of biopharmaceutical growth.
However, this company had the gall to repeatedly tell investors that there’s little value in building “large, fixed-cost research infrastructure” That view now seems misguided at best.
Valeant now faces two cash-flow problems. Regulators may force price cuts on key products and the company won’t have enough new drugs to take up the slack.
With a host of problems in front of it in 2016, this stock has plenty more bad news to digest before it again becomes a “Buy.”
Tech Turkey No. 3: Deere & Co.
John Deere a tech company?
It is, as far as I’m concerned.
Deere & Co. (NYSE: DE), which dates to 1837, may be best known for its tractors, but in recent years, it’s made a remarkable leap into the 21st century.
Deere has been spending roughly $2 billion a year to develop its “Precision Ag” range of high-tech solutions for farmers. We’re talking such on-board GPS for equipment, remote-controlled steering, satellite data and cloud-based analytics.
The problem is: Farmers aren’t in a spending mood. They are feeling the pain of a strong dollar that has caused a drop in agricultural exports.
According to the Association of Equipment Manufacturers, farm exports to Europe fell 28% in the first nine months of 2015, compared to a year ago. Shipments to South America are down 34%.
Deere has seen saw sales drop 20% in fiscal 2015 to around $28.8 billion. Look for that figure to drop another 10% in 2016.
Tech Turkey No. 4: Samsung
Samsung Electronics Co. Ltd. (OTC: SSNLF) is the classic case of a company that forgot to build a brand.
Unlike Apple Inc. (Nasdaq: AAPL) and its iconic tech products, Samsung competes not on its name but largely on price.
That lack of a brand is causing problems – and a management shake-up.
According to the digital media analysts at ComScore, Samsung’s U.S. smartphone market share slid four percentage points over the past year to a recent 27.6%. That lost share led to a 38% year-over-year drop in third-quarter profits in the smartphone segment.
Besides its branding problems, Samsung has ignored another basic tenet of modern tech firms. It has failed to build a core investor audience for its stock in the United States, the world most important market.
Yes, Samsung shares trade here, but they get no support from the South Korean firm. Liquidity is so lousy you’d be lucky to get your hands on your shares if you needed to sell.
Now you know why you should ignore the “door-to-door” Wall Street peddlers the next time they try to sell you on one of these “Tech Turkeys.”
All four of these firms face deep internal issues at a time when stock selection key.
There are plenty of reasons to be optimistic about the coming year. But your biggest rewards will come from avoiding these “turnaround” hopefuls and, instead, focusing on quality investments.
And that’s what I’ll be doing here at Strategic Tech Investor… bringing you the recommendations and tactics you need to make a lot of money.
But no turkeys.
- Strategic Tech Investor: Why 2016 Will Be the Year of the New Internet “Dream Team.”
- Strategic Tech Investor: Three More Ways to Profit Playing 2016’s New Internet “Dream Team.”