Name recognition does not automatically mean a stock is great. Just look at the fortunes of iconic American brands like Sears Holdings and General Electric. If a company becomes the victim of larger generational forces or poor management, it could put the long-term health of the company -- and your investment -- in danger.
This holiday season, you may be tempted to buy these big names, but I'd stay away.
What says "holidays" better than the annual Macy's (NYSE: M) Thanksgiving Day Parade? Macy's has been a retail staple in America since it was founded in 1830.
Of course, that doesn't necessarily mean Macy's is a great stock over the long term. The company has fallen victim to two huge megatrends: e-commerce and off-price retailers. Americans have become more and more used to browsing vast online inventories, negating the need to visit a physical store. Traditionally, Macy's diverse selection of brands and products all under one roof was a unique feature, but now? Not so much.
A second headwind: Since the Great Recession, Americans have gravitated toward off-price apparel. Discounters buy older, unsold inventory from name-brand stores (like Macy's), then sell them at a steep discount. As more people have become hip to bargains available by purchasing last year's styles, Macy's full-priced offerings have suffered.
The trend has become so strong that Macy's began its own off-price chain called Macy's Backstage. That has a chance to revive Macy's sales, but the off-price field has become increasingly crowded. And if Backstage cannibalizes sales from the full-price store, that wouldn't be a great thing for Macy's, either.
With Macy's value proposition uncertain in a rapidly changing retail scene, I'm not sure of its long-term prospects, so it's a no-go for me.
One might look at Kraft Heinz (NASDAQ: KHC) and say, "What's not to like?" Kraft Heinz was put together back in 2014, when household brands Kraft and Heinz hooked up in a $45 billion megamerger. Even better, the combined company boasted some of the best managers and investors in the business, with CEO Bernardo Hees hailing from 3G Capital, Brazil's famously efficient private equity giant. The other large investor? None other than Warren Buffett's Berkshire Hathaway.
So what could go wrong? Well, while 3G has been adept at cutting costs, Kraft Heinz has been caught up in an industrywide disruption of the consumer packaged goods sector. Today's consumer increasingly opts either for seemingly healthier craft foods made with "natural" ingredients over big-name brands, or lower-priced private-label brands developed by leading food retailers.
That's left traditional consumer packaged foods companies caught in the middle. While big-name brands are by no means going extinct, growth at these companies is becoming increasingly harder to come by. Such companies -- Kraft Heinz included -- are now shelling out big dollars for newer, healthier start-up brands, hoping to catch lightning in a bottle.
However, that's a very uncertain, somewhat expensive proposition. Despite Kraft Heinz's top-quality management and nice 4.88% dividend yield, I think the company will be hard-pressed to grow in the years ahead, meaning it might not be the best gift idea this holiday season.
You might be surprised to find Tesla (NASDAQ: TSLA) on this list. Unlike the other two, Tesla is a young company and a leader in the huge potential growth area of electric vehicles. Led Elon Musk, whom some consider charismatic and brilliant, Tesla truly does have the potential to change the world.
So why am I against buying the stock? Well, one element necessary for a long-term recommendation is the company surviving. While Tesla is a very exciting tech company, I have a hard time getting around the fact that it is, at heart, a car company. The auto sector is notoriously labor- and capital-intensive, taking huge sums of cash in hopes of eking out relatively small margins.
That's why Musk recently said in an interview with Axios that Tesla had been "single-digit weeks" away from "death" as it struggled to ramp up production of the Model 3. Add in some erratic behavior from Musk -- such as smoking marijuana on a radio broadcast and tweeting that he had funding secured to take Tesla private when he did not -- and there are just too many uncertainties around Tesla's longevity for me to recommend it as a long-term buy.
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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares in some of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool has a disclosure policy.