Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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 Fool.com and is written by Robert Hanley.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.