The 2011 U.S. stock market was a roller coaster of a ride, but ended in nearly the same place as it started. The S&P 500 index ended 2011 down about 1.1% (or up 0.9%, when dividends are included).
Of course, the average masks the huge gulf between winning and losing stocks.
Rather than kick yourself for not owning Cabot Oil (the #1 S&P 500 stock, up 100%), you can be thankful you didn’t own First Solar (down almost 75%), or the other worst-performing stocks of 2011.
There’s something to be learned from looking at both winning and losing stocks. We’re going to check out the 10 worst-performing stocks from last year and see what we can learn.
10 Worst Stocks for 2011
10 Worst-Performing Stocks: Trends
- The sun set on the solar industry (#1 and 3 are solar stocks)
- The financial sector that led us into the Great Recession is still bleeding money (#6, 9, 10)
20 Worst Stocks: Trends
Ten stocks is too few to make more than a couple observations about trends. Looking at the 20 worst-performing stocks makes it more clear just how terrible financial stocks performed (7 of the worst-performing 20 are financials), and identifies two additional trends:
- Coal producing stocks got tarred due to the weak economy (2 in worst 20: #3 in list + another in top 20)
- Steel manufacturing stocks buckled under for the same reason (2 in worst 20: #8 in list + another in top 20)
The 10 Worst-Performing Stocks: A Snapshot
1. First Solar (FSLR): Market cap $3.1 billion
First Solar, based in Tempe, AZ, manufactures and sells solar modules and systems using a thin-film semiconductor technology. It operates in the U.S. and internationally.
The stock lost almost 75% in 2011. Last quarter’s revenue growth was 26%, while earnings grew 11% (margins shrunk here, a negative). Free cash flow (trailing year) is negative. Short interest is a HUGE 43% (short-sellers make money when a stock price goes down, so many investors think the stock price will continue to drop).
Reason for drop: The solar industry’s pricing power has been driven down due to intensified competition from Chinese products. Additionally, governments worldwide have sharply reduced their subsidies for solar power.
2. Monster Worldwide (MWW): Market cap of $1 billion
New York City-based Monster Worldwide operates a network of websites that connect employers and jobseekers.
The stock lost almost 68% in 2011. Profit margin is 4% (very thin). Last quarter’s revenue growth was 13%, while earnings turned positive (so a percentage increase number is N/A). Return-on-Equity is a very low 3.7%. Beta is 2.9 (the stock price is 2.9 times as volatile as the overall stock market).
Unlike some stocks that had a poor returns in 2011 but great returns over longer periods (such as Netflix), Monster’s stock has also been a monstrous loser over the 2-year (down over 50%) and 5-year periods (down over 80%). And it’s down 90% since it’s peak of $80.50 per share in September 2000.
Reason for drop: Increased competition from sites such as LinkedIn and job weakness are two factors that have affected demand for the company’s products.
3. Alpha Natural Resources (ANR): Market cap of $4.8 billion
Alpha Natural Resources, based in Abingdon, VA, produces and sells coal in the U.S. It offers metallurgical coal for use in steel production, and thermal coal to industrial customers.
The stock lost almost 67% in 2011. Trailing P/E is 45, forward P/E is 12. Profit margin is a thin 1.3%. Last quarter’s revenue growth was 130%, while earnings grew 108%. ROE is a miniscule 1.4%.
Reason for drop: Demand for steel is down in both the U.S. and China due to the weak global economy. Thus, demand for ANR’s metallurgical coal is down.
4. MEMC Electronic Materials (WFR): Market cap of $931 million
MEMC Electronic Materials, based in St. Peters, MO, manufactures silicon wafers for the semiconductor industry worldwide. The company operates in three segments: Semiconductor Materials, Solar Materials and Solar Energy.
The stock lost over 65% in 2011. Forward P/E is 8.4. Operating margin is 2.6% and profit margin is -1.4%. Last quarter’s revenue growth was a meager 2.6% and earnings were negative. ROE and free cash flow are also both negative. The stock price has fallen off a cliff since it peaked (along with most solar stocks) in late 2007.
Reason for drop: Same reason listed in #1–systemic weaknesses in solar industry.
5. Netflix (NFLX): Market cap of $4.5 billion
Los Gatos, CA-based Netflix provides its subscribers with unlimited TV shows and movies streamed over the internet. Its subscribers in the U.S. can also receive DVDs and Blu-ray discs by mail.
The stock lost over 61% in 2011. Profit margin is at 8%. Last quarter’s revenue growth was 49%, while earnings grew 64%. These growth figures are impressive. However, with the trailing P/E at a very reasonable 19.7, but the forward P/E at an astonishingly high 600+, analysts expect growth to slow measurably. ROE is an outstanding 82%. Short interest is still high at over 19%.
I think NFLX has been beat down too much. I’m not sure I’d be a buyer at this level, but I’d not be a seller either.
Reason for drop: NFLX stock was priced for perfection, so when it’s marketing missteps occurred in mid-2011, the stock took a nosedive.
The company announced an unpopular change in pricing structure (separately charging for the streaming and rental businesses) with no forewarning. The move prompted an exodus of 600,000 customers in the third quarter. Increased competition is another factor.
6. Bank of America Corp. (BAC): Market cap of $62.7 billion
Bank of America, based in Charlotte, NC, provides banking and financial services to individuals, businesses and governments in the U.S. and internationally.
The stock lost over 60% in 2011. Forward P/E is 8.4. Last quarter’s revenue growth was about 17%, but earnings were negative. Beta is 2.8 (stock price is 2.8 times as volatile as the overall market). The stock has been decimated over the 5-year period, losing over 80%.
Reason for drop: Banks and other financial companies are still suffering due to the financial crisis of 2008. Additionally, BAC made many poor moves in 2011, notably the decision (which it later reversed) to charge for debit card use.
This decision sparked a revolt among many bank customers, and was the precipitating factor for the Bank Transfer Day movement, in which customer moved their accounts from for-profit banks to non-profit credit unions.
7. Sears Holdings (SHLD): Market cap of $3.1 billion
Sears Holdings, based in Hoffman Estates, IL, is a retailer operating under the Sears name in the U.S. and Canada. It also has a Kmart division.
The stock lost over 57% in 2011. Profit margin is a negative 1%. Last quarter’s revenue decreased about 1%, and earnings were negative. Short interest is a HUGE 44%. The numbers show nothing positive about this stock. Beta is 1.8.
Reason for drop: The company’s been performing poorly for a while due to competition from retailers such as Wal-Mart and Target, as well as the poor economy. The company announced a decision to close over 100 Sears and K-Mart stores, further eroding investor confidence.
8. U.S. Steel (X): Market cap of $3.9 billion
Pittsburgh-based U.S. Steel is the second largest steel producer in the U.S. It also has some real estate assets and projects.
The stock lost over 55% in 2011. Forward P/E is 10.7. Current profit margin is -0.5%. Last quarter’s revenue growth was 13%, while earnings were negative. ROE and free cash flow are also both negative, while Beta is 2.4.
Reason for drop: Demand for steel is down in both the U.S. and China due to the weak global economy.
9. American International Group (AIG): Market cap of $ 44.7 billion
New York City-based AIG is an international insurance company. The stock lost over 52% in 2011. Last quarter’s revenue decreased 35%, though the company swung back to positive earnings. Profit margin was 13%. Beta is a very volatile 3.7.
Reason for drop: AIG is still suffering from the effects of a liquidity crisis when its credit ratings were downgraded in 2008. The U.S. government bailed the company out to keep it from going bankrupt by making an initial reserve of up to $85 billion available. Additional bailout loans were also made.
10. Genworth Financial (GNW): market cap of $3.3 billion
Genworth Financial, based in Richmond, VA, provides life insurance, mortgage insurance and other financial products in the U.S. and internationally.
The stock lost over 51% in 2011. Profit margin is -1.4%. Last quarter’s revenue decreased 5%, while earnings dropped 65% and are negative. One notable positive: FCF is positive. Beta is a volatile 2.9.
Reason for drop: The foreclosure crisis has negatively affected the company, which is in the mortgage insurance business.
Many thanks for the info. Will continue to look for.