Markets rallied in 2016, but these stocks didn’t.
Many investors on both Wall Street and Main Street are looking hither and yon for the best stocks to buy for 2017. But never is the phrase, “If you don’t learn from the past you’re doomed to repeat it,” more relevant than now, as market watchers conduct end-of-year portfolio inventories. And where better to learn from the past than a list of the worst-performing stocks of 2016? Not only can some of these decliners serve as cautionary tales, but if you strongly believe in reversion to the mean, these stocks might actually be a good place to look for your next investment, a la the Dogs of the Dow theory.
Valeant Pharmaceuticals (ticker: VRX)
Valeant shares are down more than 80 percent on the year, making VRX the worst-performing mid- to large-capitalization stock in the entire market. First, Hillary Clinton publicly slammed the company for price-gouging in January. Then its annual report was delayed until April as VRX corrected previously overstated revenues. A damning report by short-seller Andrew Left in 2015 alleging that the company was generating phantom sales turned out to hold water: In November, a former Valeant executive was hauled away by the FBI for fraud. December brings more bad news: three executives left the company and Valeant’s most vocal proponent, hedge fund manager Bill Ackman, sold millions of shares.
First Solar (FSLR)
Solar panel manufacturer First Solar was one of the worst-performing stocks in the entire Standard & Poor’s 500 index in 2016. Shares truly began their steep decline in April, the same month First Solar reported extremely disappointing first-quarter revenue. Demand for First Solar’s panels — especially from utility companies — appears to be weakening heading into 2017, and if there’s one thing investors care about, it’s the future. Not only is revenue supposed to fall by double-digit percentages in 2017, but earnings per share are expected to plunge by about 90 percent. With that in mind, it’s no wonder shares fell off a cliff in 2016.
Tripadvisor (TRIP)
It was a painful year for Tripadvisor shareholders, who essentially saw their holding transform from a dynamic growth stock into a somewhat stable member of the old guard in the online travel industry. TRIP, which saw consistent top-line gains between 20 and 30 percent annually between 2012 and 2015, grew revenue by a meager 1 percent in the third quarter of 2015. That sent TRIP stock skidding in November — a time when most of the stock market soared during the Trump bump. But rarely can you chalk up a bad year to a single quarter, and Tripadvisor’s 2016 slump began in January, when economic growth concerns hammered the high-P/E stock.
Allergan (AGN)
Pharmaceutical giant Allergan is another one of the worst performing stocks of 2016, with shares off around 40 percent. While operational underperformance had something to do with the bad run, the main reason AGN stock plunged was pretty simple: Its planned sale to Pfizer (PFE) for $160 billion, or about $363 per share, fell apart in April. The two giant pharma companies had planned since November 2015 to combine in a corporate inversion deal that would move Pfizer’s headquarters to Ireland and reduce its U.S. tax bill by billions each year. But in April, the Treasury Department issued new regulations designed to prevent inversions like this, killing the deal.
There’s a bit of a theme to the 2016 worst stock market performers list: growth stocks imploding. Under Armour shares, which once traded for more than 70 times earnings, suffered a rude awakening in 2016, when revenue growth began slowing. Shares — of both the UA and UAA stock classes — plunged after third-quarter results showed maturing growth in North America, its premier market. Unfortunately some of these woes are out of UA’s hands: the bankruptcy of Sports Authority, for instance, hurt Under Armour’s distribution and gross margins, and will hurt profits going forward as it spends more to expand on its own.
FireEye (FEYE)
The vast majority of cybersecurity stock FireEye’s dramatic 2016 decline came in January, when shares fell by 32 percent. FEYE is another growth stock that fell victim to the “risk-off” mentality of markets in early 2016; some price correction was likely overdue, as shares had doubled in eight months through mid-2015. Heavy competition from the likes of Palo Alto Networks (PANW), as well as a tough transition to cloud-based solutions, a shift to a new CEO, and high costs that necessitated a round of layoffs all contributed to a really tough year for FireEye investors. That said, after November earnings beat expectations the worst could be over for FEYE.
Tableau Software (DATA)
Every now and then, there’s the rare case of a stock that suffers one horrific quarter, ruining its whole year. DATA is such a stock. When Tableau Software reported fourth-quarter and full-year 2015 numbers in early February, both beat expectations. But the company’s forward-looking guidance was so unapologetically miserable that investors dismissed the beats and sent the stock down 49.4 percent. Tableau, which sells data analytics software, apparently hired too many sales reps in 2015 — sales reps that couldn’t sell the highly profitable enterprise license agreements very well. DATA shares remained essentially unchanged for the rest of 2016 following the one-day drop in February.
Mylan NV (MYL)
Pharmaceutical powerhouse Mylan was not only one of the worst stocks of 2016, it was also one of the media’s favorite companies to criticize. Outrage rapidly spread over the way Mylan turned the EpiPen, a treatment for severe, sometimes life-threatening allergic reactions, into a profit machine via price gouging. Since MYL acquired the rights to EpiPen in 2007, the price soared 461 percent; EpiPen two-packs cost more than $600. CEO Heather Bresch saw her compensation soar 671 percent, from $2.45 million to $18.93 million, between 2007 and 2015. The attention hit MYL stock as the company drew scrutiny from Congress and was forced to make a generic version of the drug.
Fossil Group (FOSL)
Shares of watch-maker Fossil Group, down about 20 percent on the year, ended as one of the worst performing stocks of 2016 primarily because of its lousy first-quarter earnings report. As is often the case, it wasn’t just first-quarter results that spooked investors, it was guidance. Not only did FOSL miss on earnings and revenue that quarter, it guided for disappointing fiscal year FY 2016 EPS, projecting between $1.80 and $2.80 per share; analysts were modeling for $2.91. Widespread weakness in all three of its geographic segments, the Americas, Europe and Asia, as well as all three business segments — watches, leathers, and jewelry — simply gave investors no reason to believe in 2016.
Chipotle Mexican Grill (CMG)
After multiple food safety crises in 2015, many CMG investors believed the worst was over going into 2016. However, 2016 only confirmed to shareholders that the recovery would take multiple years. CMG suffered several lousy quarters in 2016 that hammered its stock; the first quarter saw comparable store sales plunge 29.7 percent due in part to heavy promotional activity that crushed margins. By the third quarter, comps were still falling 22 percent annually, and in December, co-CEO Monty Moran vacated his position. With activist investor Bill Ackman now betting on a Chipotle turnaround in 2017, the pressure is on. If you can’t stand the heat, get out of the kitchen.
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10 of the Worst Performing Stocks of 2016 originally appeared on usnews.com
