Inspired by GQ's popular annual list of the "least influential" people of the year (caution: language), here at Real Money we are applying our own expertise to offer you our list of the 10 least influential stocks of 2013.
As investors we all pay attention to the market "leaders": names that are on everyone's mind, and in everyone's portfolio, such as Amazon (AMZN), Netflix (NFLX) or Apple (AAPL). Equally important are the controversial short stories or turnarounds that may be struggling, but are still a topic of conversation, such as J.C. Penney (JCP).
Our list tries to identify the has-beens, the also-rans, the names whose day in the sun has come and gone. These names may still be very large or have thousands of shareholders, but what they do and what they say simply doesn't matter to investors today. In our humble opinion, these companies simply are not relevant to where the world is going, and they all deserve the appellation of "least influential." If they are in your portfolio, you really should be asking yourself why!
IBM (IBM) -- Scott McNealy, the founder of Sun Microsystems, once famously declared that "services are where tech companies go to die." IBM's product influence effectively ended back in the 1980s, when it inadvertently ceded the personal-computer business to Intel (INTC) and Microsoft (MSFT). Over the years IBM has built a large business maintaining its installed base of hardware, and presumably still sells "big iron" -- but who really cares? It has made dozens of unremarkable software acquisitions over the years as well. The best engineering IBM does is financial engineering, as the company manufactures growing earnings per share only through reduced taxes, one-time charges, share buy-backs and the like. Earnings can only grow for so long when revenue growth is zilch.
Check out the chart below, which pits IBM's performance against that of iShares Dow Jones US Technology (IYW).
Sears (SHLD) -- Sears has become Eddie Lampert's Waterloo, having wrecked Lampert's formerly stellar reputation as an investor -- which, at one point, saw him discussed as "the next Warren Buffett." Sears is proof positive that, if you let a tired fleet of stores deteriorate with no capital expenditures, if you reduce inventories to nothing and if you engage in other financially "savvy" actions, it will all result in a miserable shopping experience that will drive customers away in droves. Lampert seems to think the customer owes him high margins and returns on equity. Good luck with that value proposition. I challenge you to find anyone who still shops at any Sears location, anywhere.
The below chart puts Sears against SPDR S&P Retail (XRT).
BlackBerry (BBRY) -- It saddens me to include the "stock formerly known as RIM" on this list. BlackBerry was actually cutting edge within recent memory, and even defeated then-industry giants like Motorola in creating the smartphone industry. (Motorola Mobility is now owned by Google (GOOG).) But, as with many technology companies that feel compelled to protect their installed base -- in this case, catering to the physical keyboard crowd for too long -- BlackBerry was quickly overtaken by competitors that could offer a better user experience. BlackBerry now inhabits the dustbin of history, joining failed Canadian technology companies such as Nortel.
See the chart below -- a comparison of BlackBerry against Google (in green) and Apple (in red).
Molycorp (MCP) -- Remember just three short years ago, when rare earth minerals were suddenly in such short supply that the fate of the free world hung in the balance? World supply, recall, was basically controlled by the Chinese. Rare earths were suddenly important to national defense, emerging clean technologies and all of the tech industry, and prices soared. The subsequent popping of that bubble proved for the umpteenth time that trees don't grow to the sky, and that high prices will cause both a supply response and substitution effect.
Below we measure Molycorp against SPDR S&P Metals and Mining (XME).
Microsoft -- Microsoft is in the twilight zone of relevancy. For 13 years investors living in the past have been waiting for Microsoft to invent the next great thing, or establish the next great monopoly. They are still waiting, and the reason is simple: Microsoft was never an innovator, just a fast follower. Every product in which this company was successful was a copy of another company's pioneering work. MS-DOS was purchased. Windows was copied from Apple Mac, which itself was copied from Xerox (XRX). Word was copied from WordPerfect. Excel was copied from Lotus 1-2-3. Internet Explorer? Netscape. MSN? AOL (AOL). Bing? Google. SQL Server? Oracle (ORCL).
You get the idea. A company that can invent nothing will eventually be viewed as a company that invents nothing. Microsoft still has prodigious cash flow, so investors will care to the extent that they could start collecting a dividend. Also, who knows? Maybe in 20 years, when it is far past its prime, Warren Buffett will open a position in it.
In any case, here is Microsoft's 13-year chart.
Stay tuned Tuesday for the remaining five stocks on our least-influential list.