3 Stocks That Have Been Complete Turkeys in 2016
Image source: Getty Images.
Despite starting off the year in the worst way imaginable -- with 8% to 10% losses over two weeks for all three major indexes -- all of the major U.S. indexes are now up nicely for the year. The S&P 500, which is arguably the best overall indicator of the health of the U.S. stock market, has gained 7% through last Friday, Nov. 18. That's right on pace with the historical return of stocks, including dividend reinvestment, of 7% per year.
However, just because the overall stock market has performed well as a whole in 2016, it doesn't mean there haven't been exceptions to the rule. On this Thanksgiving Day we're going to take a look at three stocks that can aptly be described as complete turkeys for investors this year.
Valeant Pharmaceuticals
When talking about disappointing stocks, none arguably ranks higher than Valeant Pharmaceuticals (NYSE: VRX), which has lost 82% of its value, year to date.
Image source: Getty Images.
Valeant's woes boil down to two issues. First, its pricing power has come under heavy scrutiny after now-former CEO J. Michael Pearson admitted that he and his company made "mistakes" with the pricing of cardiovascular drugs Nitropress and Isuprel, which were raised 525% and 212% after they were acquired. Drugmakers rely on their pricing power to succeed, so reduced pricing power makes Valeant's growth prospects much tamer.
The other issue is Valeant's $30.4 billion in debt. Valeant regularly used mergers and acquisitions to grow its business over the last couple of years, but when its pricing power and growth rate were reduced, its ability to access additional credit went out the window. Valeant now has little choice but to sell off some of its assets to give itself some financial flexibility. Unfortunately, its management team is discovering that it's not easy to get a fair price for its assets. Valeant's peers are aware of the direness of its situation, and they're unwilling to pay a premium for either non-core or core Valeant assets. Furthermore, if Valeant sells its core assets (Bausch & Lomb and/or Salix Pharmaceuticals), it could give up much of its future growth prospects. But that might be needed to get its debt reduced to a reasonable level.
With seemingly no end in sight to its pricing, legal, and debt woes, Valeant could remain a turkey of a stock into 2017 and beyond.
GoPro
Another complete turkey of a stock is wearable camera and accessories developer GoPro (NASDAQ: GPRO), which is down 44% year to date.
Image source: GoPro.
GoPro has had a number of issues, but pricing could very well be its biggest concern. For example, as my Foolish colleague Leo Sun recently pointed out: Among reasons why its sales could vault higher, bullish investors frequently point to GoPro's potential in virtual reality, in the drone market, and for more casual users. But in essentially every instance, GoPro's price point is simply too high to attract customers. GoPro's two virtual-reality platform products are $15,000 and $5,000 respectively, while its HERO4 Session devices needed to be relaunched after the high price point crushed sales. After generating 16% revenue growth last year, GoPro is on track to see its sales decline by 23% in 2016.
The other major issue here for GoPro is that, as with most technology, it's losing its pricing power as more competitors enter the fray. It's normal for commoditization to hit tech stocks, which means a company like GoPro always has the potential to be labeled a fad. There is some potential for GoPro to generate revenue from new sources, such as its highly followed YouTube channel, but these revenue pathways are an afterthought behind its camera unit.
Until we see a notable improvement in GoPro's sales, it could remain a turkey.
First Solar
So-called "green" stocks have also generally been turkeys for investors in 2016. Solar-panel developer and manufacturer First Solar (NASDAQ: FSLR) has shed 60% of its value thus far in 2016.
Image source: Getty Images.
To begin with, crude oil prices have fallen well off their triple-digit highs and pretty much stayed below $50 a barrel this year. High crude oil prices acted as an impetus that coerced businesses and consumers to switch to alternative energy platforms, such as solar. With fuel prices having fallen, the impetus for change isn't as urgent, from consumers all the way up to electric utilities, and it's hurting both pricing and demand.
The second issue is that First Solar recently announced a massive restructuring. For the long term this restructuring is viewed as a necessary step, but in the interim, it'll involve the layoff of about a quarter of First Solar's workforce and the acceleration of its Series 6 production. Looking ahead to fiscal 2017, the company may eke out a nominal adjusted profit for the year, when a much more bountiful profit was once forecast. However, it is worth pointing out that more than 40% of First Solar's valuation is comprised of net cash, meaning it's in the best shape of any solar company to take advantage of what seems like a logical switch to the preferred energy platform of the future.
Unlike these other turkeys, for patient investors, First Solar could be a galloping gobbler over the long term.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
The Motley Fool owns shares of and recommends GoPro and Valeant Pharmaceuticals. It also has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro.
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