Three Investments to Avoid in 2013
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The year 2012 was filled with good investments and bad ones - every year is. Some companies will have remarkable success in 2013, and others will fail miserably. I'm not suggesting which companies will be the most successful, or the least successful, but I am willing to explain why some are better positioned than others.
Yes, Zynga (NASDAQ: ZNGA) plummeted in 2012 (falling 71%), but investors should watch closely as it is probable to continue in this direction. Revenues basically remained level in 2012, and there are a few reasons they might not gain profits for some time. First of all, there is nothing that separates them from anyone else. As a social networking gaming company, their success is dependent on the success of social networks like Facebook. Also, if a social networking company decides to exclude Zynga games from its website, it can do so at anytime. Zynga's FCF has decreased 377% in the past year, while capital expenditures have increased 57%. To put it simply, Zynga has failed to leverage the networking effect to turn a profit.
Best Buy (NYSE: BBY) also experienced stable revenues, but again their stock decreased almost 41% in the past year. Can Best Buy compete with companies like Amazon (NASDAQ: AMZN), which saw an over 31% increase in revenues? Yes, Amazon is a newer company, but what advantage does it have? Best Buy does not have the luxury that Amazon does. Amazon simply has more variety and more competitive prices - not to mention that Amazon is not limited to the same genres that Best Buy is.
Amazon's capital expenditures increased 27%, yet their "competitor" in Best Buy saw capital expenditures decrease by 8%. Amazon is not only excelling now, but gearing up for the future. Best Buy is putting less money into the future than it did a year ago. To sum it up, Best Buy has simply failed to innovate, failed to compete, and failed to perform.
Kraft Foods Group (NASDAQ: KRFT) is the third company to avoid in 2013. In October the company spun off the segment of North American grocery business, which has grown 3% since. Revenues, capital expenditures, and FCF have all basically remained the same since the spin off. The biggest issue I see with Kraft is they don't have room to grow. They are already in virtually every grocery store in America, and without raising prices, can't really generate more income than they already do without changing direction. This is the one company that could surprise me in 2013, but still wont receive my investment dollar until proven otherwise.
Now, like Amazon, there is one other company I would suggest looking into. Berkshire Hathaway (NYSE: BRK-B) saw revenues increase approximately 8% in 2012, and show no reason of stopping there. After posting a 14% return with its stock, it looks to still be a good investment after years of good returns. In the last ten years, the stock has soared 105%, averaging over 10% each year. Nothing astounding, but for a long term investor, it is a very viable option. Yes, the past doesn't dictate future results, but from 2000-2010, Berkshire Hathaway produced a total return of 76%, out performing the S&P 500 by nearly 88%. Warren Buffett knew what he was doing when he bought this company, and he hasn't regretted his decision.
The Bottom Line...
There are many companies in 2013 that will excel, and many that will plummet. The goal of every investor is to make money, but that doesn't happen without research. Zynga, Best Buy, and Kraft don't appear to be in a position right now to make investors a boat load of money. Amazon and Berkshire Hathaway show promise, though there are never guarantees with the market. My encouragement to you: invest wisely.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Berkshire Hathaway. The Motley Fool owns shares of Amazon.com and Berkshire Hathaway. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!