The 3 Worst S&P 500 Stocks in the Third Quarter

Published October 03, 2017
Motley Fool

2017 has been another strong year for the S&P 500 (SNPINDEX: ^GSPC), which saw its year-to-date gains rise to 12% at the end of September thanks to a 4% rise during the third quarter. Many of the stocks in the S&P 500 contributed to the index's strong showing, but not every company's shares were able to gain ground. Envision Healthcare, Foot Locker, and Mattel suffered the biggest losses among S&P 500 components for the quarter, and investors want to know whether they can bounce back or will continue to fall for the remainder of the year.

Stock

Third-Quarter Return

Envision Healthcare (NYSE: EVHC)

(28.3%)

Foot Locker (NYSE: FL)

(28.1%)

Mattel (NASDAQ: MAT)

(27.5%)

Investors envision a troubled future

Envision Healthcare was the worst performer in the S&P during the quarter, losing more than a quarter of its value. The company has historically operated a number of better-known subsidiary businesses, including American Medical Response emergency medical technicians, EmCare facility-based physician services, and Evolution Health's customized healthcare solutions.

Envision's stock responded negatively to several events during the quarter. When the healthcare company released its second-quarter results in early August, it revised its full-year guidance downward to reflect lower emergency medicine volume. Then, the company agreed to sell American Medical Response to KKR for $2.4 billion, leaving Envision with a smaller footprint in the industry. Finally, in September, Envision made major changes to its organizational structure, including the departure of former CFO Claire Gulmi and the creation of a new chief operating officer position. Bullish investors hope that the merger of Envision and AmSurg in late 2016 will pay off, but right now, the company is going through a rough patch that could continue to challenge the stock in the months ahead.

Foot Locker sees the other shoe drop

The retail industry has gone through tough times for a while now, but until recently, the athletic apparel and footwear niche had largely avoided the downturn. That has changed, and Foot Locker has seen firsthand the shift in consumer sentiment. In August, the stock fell more than 25% in a single day after announcing fiscal second-quarter results that included a 6% drop in comparable-store sales and a plunge of more than a third in adjusted earnings compared to the previous year's quarter.

CEO Richard Johnson said that the retailer was struggling with "the limited availability of innovative new products in the market," and that could continue to be a problem for Foot Locker. As more producers build out their own direct-to-consumer channels, Foot Locker's status as an intermediary could end up getting squeezed. The company is trying to respond with initiatives to work with suppliers to make internal operations more efficient, but its ability to react successfully is far from a sure thing.

Mattel plays a losing game

Mattel has also been a victim of adverse trends in the retail industry, but its woes are more company-specific. Even as key competitors have found ways to build up more encouraging results, Mattel has continued to struggle, cutting its dividend and working on a turnaround strategy.

That strategy didn't take shape during the quarter. The company's quarterly results announced in late July showed only 2% growth in sales even as higher operating costs led to a bigger operating loss. In response, Mattel wants to emphasize key brands like Barbie, Hot Wheels, and Fisher-Price while looking at key growth opportunities in China and elsewhere internationally. However, the departure of CFO Kevin Farr also raised uncertainty. Mattel needs to act decisively to get itself into true recovery mode.

Mattel, Foot Locker, and Envision Healthcare have all suffered dramatic losses, yet it's far from certain that their shares are truly cheap. Unless their efforts start bearing fruit in the form of improved results in the near future, all three stocks could continue to hold back the S&P 500 in the months ahead.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.