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Barnes & Noble, Inc. (BKS), Apollo Group Inc (APOL): Avoid These Shrinking Market Leaders

Yet a contrarian view may be warranted. First, Barnes & Noble, Inc. (NYSE:BKS) now sees very little competition from major other brick-and-mortar retails, many of whom have gone out of business. In addition, books are unlikely to ever go out of style the way compact discs have. The key for management is to take steps to make sure that every existing store generates positive cash flow. And they must continue to seek out ways to heighten the stores’ appeal and increase foot traffic. But this is a business that is more fixable then many realize.

If I had to predict one company on the table above that might shrink its way out of business, it would be online educator the Apollo Group Inc (NASDAQ:APOL). The online education segment appears to be undergoing a massive shakeout in which higher-quality academic institutions are able to boost enrollment but poor-quality operators are quickly losing market share. Apollo Group Inc (NASDAQ:APOL) is falling into the latter group.

Risks to Consider: As an upside risk, some companies will actually be healthier once they are smaller, as operations become more manageable and unprofitable niches are shuttered.

Action to Take–> The fact that these companies are shrinking in a growing economy is worrisome. Some of the blame goes to shifting societal tastes and priorities. The tech and defense sectors are two clear examples where secular shifts are hurting. It pays to assess other industries in this context to see if technological, cultural or political shifts will lead to eventual secular revenue declines.

P.S. — In contrast to these embattled stocks stands a special group of securities we call “Forever Stocks.” They’re stocks solid enough to buy, forget about and hold — forever. To learn more about these stocks — including some of their names and ticker symbols — click here.

– David Sterman

The article Avoid These Shrinking Market Leaders originally appeared on StreetAuthority and is written by David Sterman.

David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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