Buy these stocks instead of RadioShack
Some of the retailer's problems are affecting the entire industry. These companies can handle them better.
By Swarup Gupta
Shares of RadioShack (RSH) lost more than 10 percent on Tuesday after the electronics retailer posted its ninth successive quarterly loss.
The loss in the first quarter widened to $98.3 million from a $23.3 million loss a year earlier. These results are reflective not only of the individual challenges faced by RadioShack but also of the electronics retail industry as a whole.
Some of RadioShack's problems are company specific. For instance, it is finding it difficult to compete with larger retailers such as Conn's Inc. (CONN) in the electronic retailer segment. It has also lost its core customer base of electronics enthusiasts and now sells products which are available at most other retailers.
But most of the company's problems extend to the entire sector. With their wide range of products, often available at lower price points, large retailers like Wal-Mart Stores (WMT) are a serious threat to the stand-alone electronic retail segment.
Purchases move online
According to data released by Kantar Retail, 25 percent of electronics, office equipment, computer products and appliances were purchased online by customers last year. Internet behemoths like Amazon.com Inc. (AMZN) now pose a serious challenge when it comes to popular brands.
On the other hand, electronics enthusiasts, once loyal customers of RadioShack, have now turned to websites like Kickstarter. The crowdfunding platform is one of the several options available online for innovation-focused customers.
Losing momentum in mobile
RadioShack's CEO Joseph Magnacca said consumers have not been enthusiastic about new models of phones recently and this factor had acted as a drain on revenues. Market watchers also believe demand for electronics is falling because of the lack of innovative offerings. The paucity of new product launches is the more obvious reason for this phenomenon.
Additionally, wireless carriers are offering plans that allow subscribers to purchase phones through installments without paying anything upfront. These plans are available only at operators' stores. For instance, AT&T (T) has 2,000 stores which offer such plans. Of course, this factor could be less of a problem once other stores like RadioShack can also offer them.
In such a challenging environment, we believe that other stocks offer better investment options. The first of these is an Internet retailer and the second is a wireless operator. The third is an electronics retailer, albeit a larger one than RadioShack. Below we present three stocks which possess the potential to grow in such an environment, each of which also has a good Zacks Rank.
EBay is one of the largest online retailers in the world. The company's first quarter earnings were ahead of the Zacks Consensus Estimate, and management provided encouraging second quarter guidance.
Turnaround in the marketplaces segment, a focus on buying experience, a strong payments segment, opportunities in the fast-growing mobile space, international expansion and a strong balance sheet remain positives.
EBay holds a Zacks Rank #3 (Hold) and has expected earnings growth of 9.90 percent. The forward price-to-earnings ratio (P/E) for the current fiscal year is 19.21.
AT&T is the second-largest provider of wireless services in North America and one of the world's leading communications service carriers. Through its subsidiaries and affiliates, AT&T offers a wide range of communication and business solutions. The company provides wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services.
The company is likely to witness strong momentum in both wireline and wireless businesses. Continued strength in the smartphone business and solid branded computing device sales are driving the wireless business.
Currently the company holds a Zacks Rank #3 (Hold) and has expected earnings growth of 5.70 percent. It has a P/E (F1) of 13.22.
Best Buy (BBY)
Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services with 1,495 domestic locations and 473 international outlets.
The company posted fourth-quarter fiscal 2014 adjusted earnings of $1.24 per share that surpassed the Zacks Consensus Estimate of $1.01 but was lower than $1.47 earned in the year-ago quarter. The performance was aided by effective cost containment. Best Buy has now raised its target of cost reduction to $1 billion.
Apart from a Zacks Rank #3 (Hold), Best Buy has expected earnings growth of 11.1 percent for the next financial year. It has a P/E (F1) of 12.83.
All of these companies possess unique strengths required to combat a challenging business environment. This is why these stocks would make good additions to your portfolio.
AT&T (T): Free Stock Analysis Report (email required)
Best Buy Co. Inc. (BBY): Free Stock Analysis Report (email required)
eBay Inc.(EBAY): Free Stock Analysis Report (email required)
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