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11 Companies On the Edge in 2012

Rick Newman

It was four years ago that a punishing recession officially began. The financial pressure drove many companies out of business, while the survivors generally adapted and got stronger.

But some firms are still struggling, whether from delayed effects of the recession, relentless competition, fresh strategic blunders or a turnaround plan that hasn't panned out. While a double-dip recession seems unlikely in 2012, CEOs are intently watching for a financial crisis in Europe or policy mistakes in the United States that could weaken the economy. And consumer spending, surprisingly strong in 2011, could decline once again, as overspent consumers get nervous. There's plenty that could go wrong, in other words, even though the economy is supposedly recovering.

[See 12 ways to thrive in a stagnant economy.]

To identify companies with the thinnest margin for error, I analyzed data on stock prices, expected 2012 earnings and other financial measures provided by S&P Capital IQ, a financial-information firm. The companies I've highlighted had a weak year-to-date stock performance through mid-December 2011, indicating deep investor worry. These are also firms likely to have weak earnings in the future, according to Capital IQ's summary of analyst forecasts for 2012 and beyond.

There probably will not be a fresh surge of bankruptcies in 2012, but in some industries there's likely to be consolidation as weak firms succumb to stronger ones. Plus, the usual forces of competition always produce winners and losers. Here are 11 prominent firms likely to struggle in 2012:

Eastman Kodak. Stock decline in 2011: 85 percent. It's never a good sign when a firm denies that it's heading for bankruptcy, as Kodak has been doing. Kodak was slow to join the revolution in digital photography, while taking several wrong turns into fields such as pharmaceuticals and document management. The firm is now seeking to sell assets and find other ways to raise cash so it can return to profitability after five consecutive money-losing years. Investors are clearly worried: Kodak stock has recently traded below $1 per share, a threshold at which companies are sometimes delisted from major exchanges.

[In pictures: 11 companies that will struggle in 2011.]

Research in Motion. Stock decline: 76 percent. The once-ubiquitous Blackberry commanded 55 percent of the U.S. smartphone market in 2009, according to research firm Canalys. Today, its market share is less than 10 percent. Blackberry-maker RIM has failed to counter ruthless competition from Apple's iPhone and the many Android phones now available, with total Blackberry shipments falling recently even though the overall smartphone market is still exploding. Plus RIM's PlayBook tablet device--meant to take on Apple's iPad--has been a flop. A key Blackberry upgrade has been pushed back until late 2012. By then, RIM might be gobbled up by a goliath such as Microsoft or Samsung.

OfficeMax. Stock decline: 75 percent. If the economy were booming, maybe three office-supply chains--OfficeMax, Office Depot and Staples--would all be able to thrive. But the tough economy, plus competition from discounters like Walmart and Costco, has put pressure on the whole group. Investors seem to have the strongest doubts about OfficeMax, whose stock has fallen significantly more than its two competitors over the last 12 months.

Monster Worldwide. Stock decline: 67 percent. If the economy springs back and hiring picks up, this job-placement firm could thrive. But the economic rebound, of course, is painfully slow, with CEOs basically waiting to see whether another crisis is coming. It could be 2013 or later before they're convinced the clouds have passed. Meanwhile, new competitors are going online, hoping to cash in on the same hiring boom Monster is waiting for.

[See who will struggle in 2012.]

Bank of America. Stock decline: 61 percent The whole banking sector is beaten down due to fears of a European crisis. Bank of America is under special scrutiny because of its disastrous 2008 purchase of Countrywide Financial, which has saddled the bank with billions in losses on bad mortgages, many of which may to sour. Investors worry that B of A hasn't fully revealed its full exposure to troubled counterparties in Europe or stressed mortgage holders. But if B of A skirts disaster, it may recover sooner than expected.

Netflix. Stock decline: 60 percent. This once-hot movie-rental website endured an abrupt comedown in 2011 when it tried to separate its DVD-by-mail and video streaming services into two separate companies, while hiking prices on customers who want both. The fallout halted the firm's rapid growth in subscribers, just as competition from Amazon, HBO and others was intensifying. Earnings are likely to fall sharply in 2012, and some analysts think Netflix is a takeover target.

[See why raising taxes on the rich is so hard.]

KB Home. Stock decline: 46 percent. This California-based homebuilder has lost more than $2 billion since the housing bust struck in 2007, and analysts surveyed by Capital IQ are predicting another money-losing year in 2012. The company has slashed costs, targeted higher-income buyers, and refocused on smaller homes and innovative energy-saving technologies. But KB remains concentrated in several of the hardest-hit housing markets, such as southern California, Nevada and Arizona. With a housing recovery not likely to start until 2013 or 2014, at the earliest, the next 12 months look like another grinding year.

Hewlett-Packard. Stock decline: 38 percent. HP is on its third CEO in less than two years, with the turnover reflecting strategic confusion that has impaired earnings, enraged shareholders and raised concerns that HP is too unwieldy to be run effectively. With operations in many business and consumer markets, HP has numerous competitors that have been nibbling market share, leading to disappointing results likely to continue into 2012. Some analysts worry that a heavy focus on acquisitions in recent years has left holes in HP's new-product pipeline. New CEO Meg Whitman may enjoy a bit of a honeymoon, but she'll need to prove herself by the second half of 2012.

[See who will prosper in 2012.]

Sears. Stock decline: 34 percent. The nation's fourth-largest retail chain has been slashing costs and closing unprofitable stores, but analysts still expect a loss for 2012. More worrisome: A viable turnaround strategy still isn't evident. The once-prominent retailer, which now owns K-Mart, is in a no-man's land between formidable chains like Target and Walmart and online powerhouses like Amazon. With many economists expecting a consumer pullback in 2012, Sears may be forced into deep discounts or other desperation measures.

Best Buy. Stock decline: 32 percent. When Circuit City folded in 2009, Best Buy seemed like a clear victor. But the same forces that hammered Circuit City--cash-poor consumers, ruthless price pressure, tough online rivals--are now hurting Best Buy, which recently startled investors with a weaker-than-expected earnings report. The retailer's prospects may depend on whether consumers pull back in coming years, to pay down debt and build up their savings, or find new ways to keep spending.

[See 10 ways spending and saving are changing.]

Washington Post. Stock decline: 20 percent. The storied newspaper company has offset declines in its journalism revenue with profits from its Kaplan education subsidiary, which runs the well-known test-preparation service plus dozens of for-profit colleges. But new government rules meant to cut bank on student loans spent on for-profit schools will rein in the Post's cash cow. Meanwhile, ad revenue from the company's print and online news operations has been falling--with more competitors popping up all the time.

Twitter: @rickjnewman

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