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Black Friday Shoppers: Are You Buying Goods from This Company?

Monday, November 26th, 2012
By for Profit Confidential

Black Friday ShoppersWhen it comes to Black Friday and the holiday shopping season, many people look to buy electronics and other high-tech gadgets. When it comes to thinking of which of the several technology stocks one has on their shopping list, I’m pretty sure that the top name is not Sony Corporation (NYSE/SNE).

For those readers too young to remember, Sony was a pillar amongst technology stocks for a very long time. I remember going to an electronics store in the ‘80s and early ‘90s and seeing a variety of cutting-edge Sony products. The investment strategy for the company at that time was to develop great and innovative products that consumers desperately wanted. Over the last couple of decades, its investment strategy has certainly lapsed when compared to its former self.

To make matters worse, ratings agency Fitch Ratings just came out and downgraded the debt for Sony from investment grade to junk status. For someone such as myself who has followed technology stocks for decades, to think that Sony would drop to junk status would have been quite a surprise several decades ago. (Source: “Fitch cuts Sony, Panasonic debt ratings to junk status,” Yahoo! Finance via Reuters, November 22, 2012.)

The landscape for technology stocks is continuing to evolve and the speed of innovation is rapidly increasing. For technology stocks to remain on the cutting edge and at the top of consumers’ shopping lists, a company’s investment strategy must be to continually focus on developing leading and innovative product designs.

Fitch Ratings cited that part of the reason for Sony’s downgrade was the extremely strong competition from other technology stocks, such as Apple Inc. (NASDAQ/AAPL). Obviously, this is no surprise to anyone who has followed technology stocks over the past decade. Apple’s investment strategy in terms of product development has led to the company being at the top of many consumers’ shopping lists. This has severely impacted the electronic division for Sony.

Certainly, the currency strength of the Japanese yen has hurt Sony, as has the growing tension between that nation and China. However, if I were to ask 100 people what technology stocks’ products would be at the top of their shopping list, I think, without a doubt, that more people would name Apple’s products over Sony’s.

SNE Sony Corp NYSE Chart

Chart courtesy of www.StockCharts.com

This is a three-year weekly chart for Sony. Obviously, the company has had massive setbacks, not only in terms of competing with other technology stocks, but also as an investment itself. The company will need to make massive structural changes to gain any traction. This might actually involve severe cuts to the company.

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I think that its investment strategy needs to be focused on two things: the first is eliminating any product category that the company doesn’t believe has room for significant growth in profit margins; and the second, and more important aspect, is that the company needs to innovate and create new products that can exceed what other technology stocks are offering.

For Sony to once again thrive, I believe it will most likely have to shrink its overall business footprint. As an investment strategy, this can be a difficult thing in Japan. Japanese corporations are hesitant to adopt massive cost-cutting initiatives. Unless they can come up with innovative products to compete against other technology stocks, shedding non-core assets as an investment strategy might be the only way for the firm to survive over the next decade.

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Sasha Cekerevac - Investment Advisor, Fund AnalyzerSasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. Add Sasha Cekerevac to your Google+ circles