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All Contents © 2019The Kiplinger Washington Editors
By James Brumley
| December 1, 2017
The year isn't over yet, but with just a little more than a month left before 2017 is in the rear-view mirror, where individual stocks are right now is more or less where they're going to be. While most names have ridden the bullish wave of the S&P 500's year-to-date gain of 16%, in some cases there's painfully bad news—a handful of names are shockingly deep in the red.
As one may suspect, there's a story behind each of these monster-sized setbacks worth telling; most of these stories underscore the danger of unrealistic expectations—namely unmet, unrealistic expectations rooted more in hope than plausibility.
With that as the backdrop, here's a run-down of this year's biggest and most notable market failures of 2017. While the numbers may change between now and the end of December, it's unlikely any of those stock flops will perform their way off of this list by the end of next month.
Prices and data are from the original InvestorPlace story published on Nov. 21. Click on ticker-symbol links in each slide for current prices and more.
There's no sense in not starting with the name that turned out to be the year's biggest disappointment. That's Snapchat parent Snap (SNAP), which went public in early March and has since lost 27% of its value. SNAP stock has also fallen 58% from its post-IPO high, ultimately because investors learned the hard way that when it's all said and done, Snapchat just isn't interesting enough to keep enough people using it enough to be of meaningful interest to advertisers.
The supporting numbers: Last quarter's user growth was only about half its user growth seen in the prior couple of quarters. Given its young age, the company should be growing the number of members it collects each quarter.
Fanning the bearish flames that have made SNAP stock one of the biggest flops of 2017 is news that CEO Evan Spiegel grossly, wildly overestimated demand for the company's spectacles that film things from the wearer's perspective. That overproduction led to a $40 million write-down on the unsold camera goggles last quarter, despite Spiegel's insistence just a month earlier that Spectacles were experiencing great demand.
RR Donnelley & Sons (RRD) isn't exactly a household name, though odds are good everyone in your household has seen an RR Donnelley product... perhaps without even realizing it. The company makes a variety of advertising and marketing materials, as well as provides insights and consulting to client companies.
It's a business that has changed dramatically in recent years, though, and while RR Donnelley & Sons has adapted, it has struggled to keep up. Revenue has been flat since 2014, and has yet to rival 2013's peak.
It's the kind of headwind that eventually catches up with a stock too, as investors grow tired of waiting for a turnaround. This year was the year the market got tired of waiting on RR Donnelley & Sons, cutting the stock in half year-to-date.
The good news is, oil prices have rekindled 2016's recovery effort this year. The bad news is, natural gas prices haven't done the same. Henry Hub spot prices have fallen from 2016's ending price of $3.59 per million Btu to $3.05.
That's been bad news for most natural gas stocks, but it has been particularly bad news for Chesapeake Energy (CHK). CHK stock is down 44% year-to-date, and still knocking on the door of lower lows.
Aside from weak gas prices, the market remains concerned the company's high debt levels are still weighing it down. Throw in the fact that planned capital expenditures are going to ramp higher next year—exacerbating the debt problem—while the company continues to sell revenue-bearing assets, and the market simply isn't convinced Chesapeake will ever be able to dig its way out of the hole it's in.
Talk about unfortunate timing.
Meal kit company Blue Apron (APRN) was founded in 2012, but didn't go public until June of this year. That's when the concept of pre-packaged meals was really starting to take off, and when the name “Blue Apron” was starting to turn consumers' and investors' heads. Though there was competition in this space, >Blue Apron was the market leader... at least in terms of names that also delivered their pre-packaged, ready-to-heat meals.
Then on July 17—less than a month after Blue Apron's IPO—Amazon.com (AMZN) dropped a bomb on APRN shareholders, announcing it too was getting into the meal kit business, leveraging its acquisition of Whole Foods Market.
Considering Amazon pretty much crushes any smaller players in an arena it wants to be in, it's no wonder APRN shares are down 70% from their IPO price of $10.
As of the beginning of the year, it was more or less expected that struggling drug store chain Rite Aid (RAD) would be mostly acquired by rival Walgreens Boots Alliance (WBA). Though Walgreens was ready and willing to sell some of the units it bought to avoid antitrust concerns, both parties were planning on the deal planning out.
Big mistake. By the time the deal was palatable enough to suit the Department of Justice's antitrust arm in September of this year, not only had Rite Aid continued to deteriorate, the deal is only for half of Rite Aid's stores. What was originally a $17 billion offer ended up only being a $4.4 billion transaction.
RAD shareholders paid the price, with the stock down more than 80% year-to-date.
Calling a spade a spade, years and years of ill-advised spending on sponsorships and celebrity endorsements finally caught up with athletic apparel company Under Armour (UAA). The shtick worked for a while, and investors didn't care about weak margins as long as the top line was growing.
With the saturated industry hitting even just the slightest of headwinds though, all of Under Armour's weak points come shining through. Sales and profits both fell last quarter, marking the second quarter in a row earnings fell on a year-over-year basis.
The market mostly saw it coming beforehand, however. UAA shares were down 30% by mid-year, and are now lower to the tune of 53% since the end of 2016.
Yes, once-iconic Sears Holdings (SHLD)—which also owns Kmart—is still around, though it's difficult to imagine how. The company and the stock have been losing ground for years. In fact, Sears' sales have been dwindling since 2006, and the stock's fallen 96% since its April-2007 peak, reaching a multi-decade low (again) just this month. It's off by 54% in 2017 alone.
What happened? Several things, including the advent of Amazon. The demise of Sears isn't just another case of Amazon's ever-growing presence, though. Most of Sears wounds are self-inflicted, with the brick-and-mortar chain just never adapting to the new way consumers shop and think.
Sears isn't the only old-school retailer to lose relevancy with consumers—JCPenney (JCP) fell into the same trap.
To its credit, JCPenney has done a lot more to combat its challenges than Sears has. For example, it's getting serious about an omnichannel presence, it's biting the bullet on a waning women's apparel business, and wading deeper into its private label brands.
These are all exciting prospects that have helped the stock from time to time this year. They have just not helped enough, nor have they offset the bigger bearish tide for the stock. JCP shares are off 62% year-to-date thanks to a rather disappointing turnaround effort.
It's not like Fossil Group (FOSL), which makes wallets and belts but is known best for its watches, hasn't tried its best to get in on the smartwatch movement. Indeed, one could argue that Fossil has done a better job of melding fashion and technology than another smartwatch maker.
It just doesn't matter, when those other players include names like Apple (AAPL) and Fitbit (FIT). Both rivals, and a slew of smaller players, are names that consumers better associate with a new spin on wearable technology. Smartwatches are the hot spot in watches right now, but Fossil just isn't a compelling player on that front.
The end result: FOSL shares have fallen 72% so far this year.
Last but not least, while Pandora Media (P) can largely be credited for mainstreaming the streaming music market, the competitors like Spotify, Apple's iTunes and even Amazon that it drew into the market have proven to be a major problem for the company. Not only is Pandora's revenue growth slowing down, its net losses are getting bigger and bigger as the business becomes more and more commoditized.
Investors, wondering if there's any viable future for the company, have sent the stock lower by 61% year-to-date.
One glimmer of hope... BMO Capital recently upgraded Pandora Media, suggesting it would get better at operating the ad-support model; offering more podcast content is also an underappreciated opportunity.
Perhaps more than anything though, there's still a chance Pandora could be acquired at a fairly healthy premium to today's price.
This article is from James Brumley of InvestorPlace. As of this writing, Moon did not personally hold a position in any of the aforementioned securities.
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