10 Companies That Will Not Be Saved by the Bull Market Alone
November’s continued rally has proven one thing, and that is that the snapback rally starting in mid-October was for real. The Dow Jones Industrial Average (DJIA) and S&P 500 hit new all-time highs on the heels of a round two of Japan’s quantitative easing and on the reality that earnings season turned out much better than feared in September when the sell-off began. Unfortunately, not all stocks have fared well in that recovery period. Some stocks may have even seriously destroyed their long-term prospects for investors.
24/7 Wall St. has tracked and analyzed 10 stocks that the bull market appears to be leaving behind. Investors have so far avoided these stocks, and that is a trend that may last much longer than just a few weeks or a quarter, unless something drastic occurs at each company. Most of the bad news came from earnings revelations, but not all the carnage is tied to simple revenue and earnings calculations nor to valuations.
Fortunately, some companies can recover from their woes. Others may not recover quickly, or even at all. 24/7 Wall St. has summarized the implosion event and looked ahead for each company’s prospects based on analyst data and historical trading data, as well as has added some insight and color.
While it may seem obvious that oil and gas would be losers with oil breaking under $75 per barrel, we have limited the oil patch to three pure-play stocks. Also, the drop in metals and gold pricing is well-known, so we limited this sector to two stocks. Other losers are in tech and in services or products tied to the consumer.
Again, most of these companies can save themselves by making serious change, or they can get bailed out by industry changes. Just don’t expect that a rising S&P 500 or DJIA to new highs in 2014 and 2015 will translate to a gain or major recovery in these stocks without serious management effort. These companies have either made critical strategic errors on their own or they are in sectors where the fundamentals are currently too negative to easily overcome.
> Stock price: $9.99
> Market cap: $4.35 billion
Avon Products Inc. (NYSE: AVP) has been, and apparently continues to be, a turnaround that simply cannot turn around as revenues remain in decline. That being said, watch out for a screaming stock if there is ever good news again, with its valuation so low compared to historic valuations and compared to peers on revenues. It is also valued at only about 12 times forward earnings. The ladies’ consumer products purveyor announced earnings in late October that were light on revenues. Even more analysts have abandoned their ratings and hopes of a turnaround since then: Stifel cut its rating to Hold from Buy, and B. Riley lowered its rating to Neutral from Buy. Avon’s stock has a consensus analyst price target of $12.27 and a 52-week range of $9.76 to $18.12.
> Stock price: $9.95
> Market cap: $3.5 billion
Denbury Resources Inc. (NYSE: DNR) saw its shares take about a 10% drop in November, but this was after shares had already lost more than a third of their value. This decline is not entirely a solo effort, considering that oil prices have tumbled. The real news was that it was planning to reduce its capital spending by about half in 2015. The company also reported that two of its top executives, Craig McPherson and Charlie Gibson, had resigned from their positions. Sterne Agee and Credit Suisse downgraded Denbury, and others have tempered their expectations. The stock is barely valued at 10 times forward earnings expectations. Denbury’s stock has a consensus analyst price target above $17 and a 52-week range of $9.73 to $18.59.
> Stock price: $28.40
> Market cap: $29.5 billion
Freeport-McMoRan Inc. (NYSE: FCX) saw its shares take a dip over the past month on lower metals and oil prices and due to complications with an Indonesian copper mine. Ultimately the strike was averted for now, but the stock has not since recovered. The company also raised $3 billion in note sales. Earnings were down 32% in its most recent report. The good news is that this stock likely will recover when its markets do, and it is considered a key player. Its stock has a consensus analyst price target of $38.60, although that target is so high now that it is beginning to feel like even more adjustments lower should be made, considering that very low revenue growth is still expected in 2014 and 2015. Freeport is valued at only about 12.5 times forward earnings, and it has a 52-week range of $27.07 to $39.32. Could an activist investor make a difference here by getting the company to refocus efforts on individual commodity groups?