Sometimes great companies fail to respond effectively to huge, new threats because they’re stuck in a rut and become stocks to sell. The classic example of this phenomenon is Blockbuster’s failure to acquire Netflix (NASDAQ:NFLX) when it had a golden opportunity to easily do so. For the readers who are too young to remember Blockbuster and haven’t heard about it, the company relied on renting DVDs through brick-and-mortar stores. In 2000, money-losing Netflix was renting DVDs through the mail and, I believe, had the vision of one day streaming movies. In that year, Netflix offered to sell itself to Blockbuster for just $50 million, and Blockbuster refused the offer.
Obviously, Blockbuster’s decision to simply stay the course in the face of huge technological changes proved to be disastrous. The chain subsequently declared bankruptcy and ceased to exist. Here are three contemporary firms that, like Blockbuster, are failing to react effectively to gigantic, looming problems. As a result, I view these names as stocks to sell.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) is facing huge competition in China and the U.S. from coffee brands Luckin Coffee (OTCMKTS:LKNCY) and Dutch Bros (NYSE:BROS). I believe that the key factor behind Starbucks’ recently reported disastrous fiscal second-quarter results was the tough competition from these two rapidly growing firms.
In my opinion, Starbucks made a crucial error by failing to acquire Luckin and/or Dutch Bros when they were trading at much lower levels. If Starbucks had offered to buy them in 2022, for example, the coffee giant could have obtained them for a relatively small sum.
As long as Dutch Bros and Luckin continue to expand and gain market share, I believe that Starbucks will be, at best, “dead money” going forward. Consequently, it’s definitely among stocks to sell.
Walt Disney (DIS)
For many years, I’ve believed that Walt Disney’s (NYSE:DIS) two largest businesses, cable TV channels and movies, were going to shrink dramatically. And, so far, my thesis has certainly proven to be accurate. Cord cutting is continuously reducing cable subscriber totals and Americans are visiting movie theaters much less than they once did. There is also significant competition in the streaming sector. As a result, I thought that Disney’s streaming services would not be a good way to compensate for the declining profits of its cable channel and movie businesses. The latter theory has also proved to be on target, as the conglomerate’s streaming channels still aren’t profitable.
Disney’s decision to put so many of its eggs in the streaming basket was certainly erroneous, as was its decision to spend a huge $71.3 billion on buying 21st Century Fox. By that year, Disney should have seen that its movie and cable assets were headed for big problems.
Instead, Disney should have doubled down on its highly successful parks business by building and/or acquiring parks in additional countries. Buying an online sports betting company company and trying to promote it through ESPN also would have made sense.
The conglomerate very belatedly took a tentative step in that direction by launching a sports-betting partnership with Penn Entertainment (NASDAQ:PENN) last year. But Disney is not going to directly obtain revenue from the deal. Moreover, the companies’ venture, called, ESPN Bet has a huge disadvantage because it was launched so many years after other companies in the space had already acquired a high number of customers.
Apple (AAPL)
Last quarter, Apple’s top line dropped a dismal 4.3% versus the same period a year earlier to $90.75 billion. Even more importantly, last quarter was the fifth out of the last six quarters that the storied company’s revenue has fallen. Moreover, the sales generated by the tech giant’s flagship products tumbled a huge 10.5% YOY last quarter.
The firm is supposed to enhance the iPhone with AI capabilities later this year. But, given the company’s inability under CEO Tim Cook to introduce truly needle-moving product initiatives, I don’t expect the changes to boost the iPhone’s sales significantly, let alone meaningfully increase the company’s overall top line.
Apple could have and should have acquired Roku (NASDDAQ:ROKU). If the tech giant had advertised Apple TV on the platform, its streaming initiative would have become a big success. And it would have been able to tout its many other products on Roku, which could have significantly lifted sales of these other offerings.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
