The 10 Worst Stocks in the S&P 500 in 2016

By Dan Caplinger Markets Fool.com

2016 was a good year for the S&P 500 (SNPINDEX: ^GSPC), giving investors double-digit percentage gains with a total return of about 12%. After a flat 2015, that was welcome news for those who invest in the S&P 500 through index funds. Yet even though the S&P did well, well over 100 stocks in the index lost ground in 2016. Below, you'll see the 10 worst S&P stocks in 2016, along with analysis of what they had in common and whether they'll be able to bounce back in 2017 and beyond.

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Stock

2016 Return

Endo International (NASDAQ: ENDP)

(73.1%)

First Solar (NASDAQ: FSLR)

(51.4%)

TripAdvisor (NASDAQ: TRIP)

(45.6%)

Perrigo

(42.1%)

Vertex Pharmaceuticals

(41.5%)

Stericycle

(36.1%)

Alexion Pharmaceuticals

(35.9%)

Illumina

(33.3%)

Mallinckrodt (NYSE: MNK)

(33.2%)

Allergan

(32.8%)

Source: S&P Global Market Intelligence.

A terrible year for pharma and biotech

It's easy to see the negative influence that the healthcare sector had on the S&P 500 in 2016, especially in the pharmaceutical and biotechnology arenas. The majority of stocks among the index's worst 10 performers have at least some connection to the industry, and although the specific reasons behind each stock's decline differed slightly, the one thing they had in common was a more hostile view politically toward the level of profit margin that most pharma and biotech companies have sought from their approved treatments. Even though the industry rebounded slightly in the wake of the U.S. presidential election, subsequent statements have strongly suggested that even a Republican-controlled White House and Capitol Hill won't leave drug companies immune from pressure to cut prices.


Image source: Getty Images.

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Of course, company-specific setbacks are often responsible for big price drops among pharma and biotech stocks. Endo International, for example, has had to deal with product liability issues at its women's health division, competition from a generic alternative to its Voltaren anti-inflammatory gel, and its inclusion among several industry peers in a Justice Department investigation of alleged collusion in setting prices. Vertex's losses stemmed from several challenges, including weaker performance than anticipated for its cystic fibrosis drug Orkambi and an FDA decision early in the year not to approve its Kalydeco drug in treating certain patience with specific residual function mutations. And for Mallinckrodt, issues in dealing with one of its outside manufacturers played a role in recent losses, and more generally, weakness in its generic drug business and an analyst's attack from Andrew Left at Citron Research left Mallinckrodt's stock reeling.

Already in 2017, the tone among pharma and biotech stocks has improved, and some of these stocks have started to find their prospects improving. Yet it's too early to tell whether the broader concerns that many have had about the industry will pan out later in the year.

Handling tough times

Beyond healthcare, the other hard-hit stocks in the S&P 500 had to deal with adverse industry conditions as well. First Solar's losses stemmed from a tough strategic decision to cancel a solar panel upgrade, ending its plans to release a Series 5 product and instead skipping straight from Series 4 to Series 6. That will result in substantial declines in production in 2017 and 2018 as the company makes the transition, and although First Solar has the financial strength to endure a tough couple of years, the longer-term worry is what could happen if industry advances leave First Solar behind.


Image source: First Solar.

Meanwhile, TripAdvisor has already made a big gamble on a strategic transition, and so far, it hasn't panned out as well as investors had hoped. Partnerships with other online travel specialists have helped boost volume to its instant booking platform, but TripAdvisor hasn't yet generated the income from going beyond its previous travel-review strategy to justify the investment the company has made. 2017 could bring more progress, but TripAdvisor could also have difficulty dealing with early signs of a return of U.S. dollar strength and other more general headwinds to the travel industry.

Even though the S&P 500 performed well in 2016, these stocks show that not every part of the stock market enjoyed a good year. Moreover, it's not a foregone conclusion that a rebound will necessarily materialize quickly for these hard-hit stocks. Rather, it will take some fundamental changes in business conditions to justify more optimism about the worst S&P stocks in 2016.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Illumina and TripAdvisor. The Motley Fool recommends Stericycle and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.