Not to conjure up any bad memories from Old Yeller, but Panasonic (NYS: PC) should be taken out behind the woodshed and put out of its misery before it dupes any other value-seeking investors into buying its stock.
Just because you don't like a product isn't enough reason to bet against it, but honestly, ask yourself the last time you saw a Panasonic product or heard about one that was considered cool. Still thinking? Don't feel bad, so am I! I'm pretty sure I was in grade school the last time Panasonic had a hot-selling item and it's for that reason that we need to kick this stock to the curb for good.
Having a well-known brand name isn't enough to get your products off the shelf anymore. Take a look at RadioShack (NYS: RSH) , which is slowly transforming itself from "The Shack" to "The Shanty." Last week RadioShack cautioned investors that it would earn just $0.11 to $0.13 in the fourth quarter versus expectations for $0.36. Counting actual earnings-day misses, this was the fifth straight quarter of widening misses on a percentage basis.
Even Research In Motion (NAS: RIMM) has found its way under the consumer guillotine. RIM was at one time synonymous with innovation -- now it's "that company with the tablet that collects dust on Best Buy's shelves." Most people know the RIM brand name, but few can tell you the last time the company's products excited investors.
This brings me back to Panasonic, which joined the trend of Japanese consumer electronics makers and significantly reduced its earnings forecast in lieu of increasing competition and weak demand. Panasonic expects to report a record loss of $10.2 billion for fiscal 2011 -- far more than the $6 billion analysts had originally predicted. Similarly, Sony (NYS: SNE) warned of a $2.9 billion loss in fiscal 2011 and cautioned that its TV division would lose money for an eighth consecutive year. Rival Sharp (OTC: SHCAY) is also expected to run in the red by $3.8 billion.
These results are terrible, there's no two ways about it, but Panasonic's are just extra-bad.
For one thing, Panasonic is struggling to incorporate Sanyo's product line into the mix and has discovered that many of its divisions actually overlap. What Sanyo does have to offer -- solar products and rechargeable batteries -- simply isn't in demand right now.
Secondly, as I've mentioned, Panasonic's products just aren't cutting-edge anymore. In November, the company announced it would shut down two TV manufacturing plants and sell its flat-panel designs to competitors. That sounds more like a going-out-of-business plan than a demand furlough to me.
Finally, when all is said and done with fiscal 2011, Panasonic's cash flow will have been negative in two of the past three years. Panasonic simply can't keep this up while sporting $21 billion in debt and doling out $0.50 a year in dividends -- something's going to give, and my guess is it will be the dividend.
I'd recommend you do yourself a favor and do as I've done by adding Panasonic to the "No way in hell I'm investing in that -- even if you paid me!" list. I plan to make a CAPScall of underperform on Panasonic to show my confidence in this call.
Disagree with me? Sound off in the comments section below and consider adding Panasonic to your free and personalized watchlist. Also, if you want to avoid the pitfalls of investing in companies that fail to innovate, then I suggest you get your copy of our latest special report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution." It's free and it's focused on the latest hot gadgets. Don't miss out!
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He thinks a portable CD player is the last thing he bought from Panasonic. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Best Buy and RadioShack. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that won't put your cows to pasture.
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