The stock market has continued its eight-year bull-market run in 2017, with solid gains that have sent major market benchmarks to unprecedented levels. But even though most investors are excited about the prospects for the market, some individual stocks haven't done as well. In particular, Rite Aid (NYSE: RAD), Hertz Global Holdings (NYSE: HTZ), and Frontier Communications (NASDAQ: FTR) have all lost at least half their value so far this year. Because of the things that sent those stocks downward, investors are rightfully nervous about whether further declines are possible.
Continue Reading Below
Rite Aid gets impatient about its deal
Rite Aid has been waiting for a long time to get the final go-ahead to move forward with its planned merger with Walgreens Boots Alliance (NASDAQ: WBA). Yet time after time, Rite Aid has run into roadblocks that have prevented it from completing the deal. Even after crafting divestitures to try to appease federal regulators, Rite Aid hasn't been able to convince the Federal Trade Commission to give final approval to the combination.
Image source: Rite Aid.
Continue Reading Below
When the original deadline for the deal expired in January, Rite Aid had to make concessions to keep Walgreens interested, cutting the buyout price from $9 per share to $6.50. Yet even that major haircut was only enough to extend the deadline to July. With no apparent progress being made with the FTC, investors have demanded a huge margin of safety to allow for the possibility that the deal might fall through. Yet some believe that Rite Aid might have fallen too far, and that could help bring the stock back, even if the Walgreens merger ends up not happening.
Hertz drives downward
Most people focus on Hertz Global Holdings as a leader in the rental car industry, figuring that the key to their success is the level of rental activity. Yet equally important for Hertz is the ability to sell off the older cars in its fleet at a reasonable price. However, in March, bad news on the used-car pricing front started to send the rental car company's stock downward. Those preliminary warning signs eventually showed up quite starkly in Hertz's quarterly financials, and that led to even worse losses for shareholders.
For Hertz to recover, it will need to see increased stability in the used-car market. Yet CEO Kathryn Marinello has admitted that it will take time for Hertz's turnaround efforts to play out completely, and that could produce more difficult times in the near term. If future results show continued pressure on Hertz's revenue and earnings, then it could be some time before the stock stops moving in the wrong direction.
Frontier makes a long-anticipated cut
Finally, Frontier Communications is the worst performer of the three stocks mentioned here, with share-price declines of more than 60%. Declines began in late February, when Frontier announced that its fourth-quarter financial results weren't good enough to live up to investor expectations, and executives announced that they would seek a reverse split for the stock. Yet the real coup de grace came in May, when Frontier finally did something that it had hoped never to do: slash its dividend. Frontier's dividend cut took the payout down from $0.105 per quarter to just $0.04. Although the company insisted that the move would give it more financial flexibility, many investors took it as the last straw in a series of setbacks for the company.
Going forward, it's uncertain whether Frontier will be able to turn around its business. Acquisitions have led to growth in certain metrics, but they've also increased the pressure on Frontier's balance sheet and have raised the stakes for the telecom company. Without quick success in the key new markets of California, Florida, and Texas, Frontier could continue to see further share-price declines, especially with the 1-for-15 reverse split coming in July.
It's rare for a stock to lose half its value, but when it happens, you have to take an unemotional look at the company to see if your reasons for buying the stock are still valid. It's possible that these three stocks could bounce back, but it's going to take substantial effort to get investors back to where they were at the beginning of 2017.
10 stocks we like better than Rite Aid
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Rite Aid wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017