The 5 Most Terrifying Tech Stocks of 2012
Dec 28th 2012 7:30PM
Updated Dec 28th 2012 7:34PM
It's been a crazy year for tech investors. The Nasdaq Composite index has oscillated from 5% to 20% gains, helped and hurt by macroeconomics, the impending death of the PC, and the rise of tablets and smartphones. All in all, the Nasdaq index gained nearly 13% in 2012, which is far better than the negative 1.5% return seen in 2011. But the rising tide didn't lift all boats. Let's have a look at some of the year's biggest losers.
Digging in the dirt
Advanced Micro Devices started the year in fine form, gaining as much as 50% in the first quarter. But then the bottom fell out of the PC market while new products from chip-making rival Intel left AMD's finest efforts sorely lacking. A series of boneheaded management moves followed, and AMD is now a mere shadow of its former self.
I don't see an end to this sad story in 2013, unless shareholders fire the entire board of directors to start fresh. And even then, a real turnaround would take many years and be full of all-in risks. My thumbs-down CAPScall on AMD stands firm as we enter the new year.
Hip replacement tooling expert MAKO Surgical crashed hard on a disappointing quarterly report in May -- and again in July. System sales and demand for renewable supplies plunged, and Wall Street issued a host of downgrades. Goldma Sach was skeptical about "the long-term viability of MAKO's core technology," and worried that the robotic bone-grafting tools wouldn't be useful outside the core hip surgery market.
But here at the Fool, analysts saw upside from these low prices and even bought shares in the company. At the end of 2012, MAKO is heavily shorted but perhaps for all the wrong reasons. If and when the fiscal cliff worries go away, hospitals could start ordering MAKO systems again. This is a potential multibagger turnaround story in the making.
Electronics retailer RadioShack is a different story. The stock plunged in January and never recovered, and I don't think it ever will. Investors have lost a heartbreaking 88% of their investment in two years as e-commerce and hyper-efficient big-box stores destroy RadioShack's traditional model of running small, specialized brick-and-mortar stores.
RadioShack has been on my personal death-watch list since 2008. There used to be a quarterly dividend of $0.125 per share, which would work out to a massive 22% yield at today's prices -- but you can take that red flag down because the payouts have been suspended since the summer. That's the end of a 25-year streak of annual dividends. Fellow Fool Andrew Marder said it best: "RadioShack isn't a value stock; it's a death trap."
How to lose fans and alienate customers
And then there's the pair of terrible e-business twins.
Groupon's coupon-wrangling business model never made any sense to me, and now investors are losing faith in the story as well. The company is changing direction to become more of an online retailer in the Amazon.com mold. That decision creates a chance of turning the beat around in 2013, but Groupon faces a crowded and mature market that leaves little room for error. I love to see the underdog win, but Groupon doesn't stand a realistic chance here.
Finally, Zynga seemed to have the world on a string a year ago. Traditional game designers started shifting their business models toward the online casual gaming niche that Zynga rules (ruled?) with an iron fist.
But the company is sacrificing fun to maximize profits, which destroys the long-term value of its social games. Gamers are turning offÂ FarmVilleÂ and Empires & AlliesÂ in droves while creative insiders are leaving the company. Crucial partner Facebook may soon become a competitor. The gaming industry may be changing course, but Zynga doesn't look like a destination anymore.
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The article The 5 Most Terrifying Tech Stocks of 2012 originally appeared on Fool.com.Fool contributor Anders Bylund owns shares of Intel. The Motley Fool owns shares of Amazon.com, Facebook, Intel, MAKO Surgical , and RadioShack and is short RadioShack and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Amazon.com, Facebook, Goldman Sachs Group, Intel, and MAKO Surgical . Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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