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Stop and Think Before Selling These Leaders: Apple Inc. (AAPL), Mellanox Technologies Ltd. (MLNX)

When to worry

Naturally, there is a time and place to act upon trends that are negatively affecting your investments.  When customer purchasing habits permanently alter your company’s prospects, it’s time to find the exit.  Best Buy Co., Inc. (NYSE:BBY) and RadioShack Corporation (NYSE:RSH) are good examples of such a shift.

Both companies operate thousands of stores, primarily in the U.S., that sell a wide range of consumer electronics and mobile devices.  While the companies’ national base of stores were previously an advantage, they have since become a source of additional, uncompetitive costs.  Customers have increasingly used stores to browse their favorite electronic products, but have purchased the items directly from manufacturers’ websites or through online marketplaces.

In FY2012, both companies reported small declines in total sales, but large shortfalls in operating income that didn’t support their required capital needs.  Best Buy’s more diverse product mix allowed it to perform relatively better, but both companies reported declines in comparable store sales.  Smartphones account for a large portion of both companies’ sales, but the products ironically have a low profit margin to the resellers.  While both companies are attempting to use their websites and service offerings to increase sales, they have a long, uphill climb to remake their businesses in the digital age.

The bottom line

Apple and Mellanox are leaders in their industries and have shown abilities to provide innovative products that are in high demand from their customers.  While their businesses may have short-term hiccups, the long-term business trends support these companies’ growth well into the future.  At low valuations, they are companies to own.

The article Stop and Think Before Selling These Leaders originally appeared on and is written by Robert Hanley.

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