Monday, December 04, 2006

The Worst-Run Companies in the U.S.

The following article was originally published on The's Street Insight website (see links to the right) on October 18, 2006. In addition, I followed up with an interview on TV the following week (the link to the video also appears on the right).

As we are now deeply entrenched in the 2006 third-quarter earnings season, the question that always pops up in my mind when we are at this juncture is, what are the worst-run companies in the U.S.?

Without further ado, and in no particular order, here is my list:

  1. Industrials: Alcoa (AA) Year to year, quarter to quarter, this is The Gang that Couldn't Shoot Straight (by the way, also the name of a great book by Jimmy Breslin). When commodity prices work against it, it delivers disappointments. When commodity prices work in its favor, never fear! It will botch it up and disappoint. Competition is never a problem for Alcoa; it does a fairly good job of competing against itself.

  1. Technology: Lucent (LU)). How do you destroy Bell Laboratories, once the leading edge of telecommunications innovation in the world? Answer: Spin it off from AT&T (T)), load it up with debt, put lousy management in charge and lose the creative talent to the competition. At least it will soon be Alcatel's (ALA) problem. Au revoir.

  1. Media/entertainment: Cablevision (CVC). Or should I say Dolanvison? The Dolan family has managed to destroy shareholder value while increasing their own wealth for many years. In the process, they have destroyed a New York icon, the Knicks, mismanaged another, the Rangers, sabotaged an Olympic bid, delivered lousy service to customers, made a bad investment in The Wiz, failed to grab up the old Adelphia properties on the cheap, piled on debt and then tried to rip off shareholders in last year's failed privatization offer.

After a special cash payment of $10 to shareholders in April, the Dolans were finally able to grab CVC back from shareholders just this past month. Finally, shareholders will be rid of the Dolans and, if they are smart, will invest the proceeds of their sale into a better-managed company.

  1. Financial services: Janus Capital (JNS). We are in the middle of the biggest asset-management boom of all time, and this company has managed to move in reverse. Assets have flowed with the accompanying management fees to the competition, and this is likely to be a unidirectional movement. Don't be fooled by the recent stock performance.

  1. Retail: It's a tie. Too close to call. Sharper Image (SHRP) and Pier 1 Imports (PIR). I actually ran a five-year comparative chart of the two companies. The relative returns were as close as a pennant race between the Tampa Bay Devil Rays and the Kansas City Royals. Relatively competitive, but absolute losers.

Sharper Image reminds me of the Scotch Tape Store sketch from Saturday Night Live in the 1970s. All that the store sold was Scotch tape. All that Sharper Image seems to sell are ionic breeze air purifier machines. Have you ever gone to one of its stores? It's where the men hang out while the women spend money at the other retailers -- you know, those retailers who know how to manage a business.

As for Pier 1, that store has more junk in it than any women I know would be caught dead living in the same house with.

I am sure you have your own nominees, especially those that have cost you performance in the past. The lesson is, when you invest in a stock, you are also investing in management.

Note: Subsequent to the publication of the article above, Alcatel's acquisition of Lucent was completed. The new company is aptly named Alcatel Lucent (ALU).

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