You want depressing? I will give you depressing. It's trying to find something to buy among the top 10 losers in the S&P 500 from 2016. It's not that there aren't some legitimate companies -- far from it. I see a couple of situations that could be ideal for 2017, including one I would just outright buy.
But for the most part, they are from the boulevard of broken dreams, stocks that were once great based on models that have either gone away or have been betrayed by events. Because of financial straits brought on by too-aggressive managements, they might not be able to turn around, not now, not ever. That said, they are worth mining if only because you sure can't say, unlike the Nvidias (NVDA) of the world, they've run a lot and you've missed them. Sadly, that's the biggest thing most have going for them.
Take the worst loser, Endo International (ENDP) , down 73%. This pharmaceutical company embodies all of the things that used to work before 2016 -- inverted headquarters in Dublin, strong generic drug profile, opiate opportunities and an acquisitive management.
In 2016, the federal government cashiered the ability of overseas-based -- so-called mail-drop companies -- from buying other companies, typically in the U.S., and then saving money by lowering tax rates. Once this so-called tax arbitrage strategy bit the dust, the "buy everything you see" methodology, along with its executioner, Rajiv DeSilva -- who came from the executive ranks at the now totally disgraced Valeant (VRX) no less -- went the way of the dustbin. New management is struggling with the pricing pressure across the board while trying to deal with the $8 billion in debt piled on during the ill-fated acquisition binge. Insult to injury: Companies in the generic drug business are suspect to Trump tweets as the "bag 'em and gun 'em" generic price strategy is a thing of the past.
So's Endo.
First Solar (FSLR) , No. 2 on the hit-and-miss parade, down 51%, is simply in the wrong industry at the wrong time -- solar panels in an era where it's conceivable that you lose money on every panel you sell. This company is the pride of the industry, which would be fine if it weren't an industry that would seem to have a headwind now that a climate-destruction denier is headed to the White House. I think that selling ice to Eskimos might be more lucrative than selling solar panels.
Needless to say, this company, like almost every company on this list, will most likely see estimates cut across the board when it reports even as they have already been trimmed and trimmed and trimmed again. Analysts: My suggestion is to take a meat ax if not a wood chipper to your numbers, even as the 17-cents-a-share consensus you are looking for this coming quarter, down from $1.66 a year ago, seems like it is already a low bar! Yes, it is that bad at First Solar.
The stock of TripAdvisor (TRIP) , down 45%, definitely intrigues because the space it plays in, online travel and leisure, is growing. Unfortunately, TripAdvisor is not growing. Fortunately, that's because of a model change the company made, going to instant booking as opposed to referral fees, an attempt to build a solid ecosystem of reviewers who then stay on the company's site to book reservations. The transition both to this new model and from desktop to mobile has proven to be too much for the company, which is still talking about "plugging the monetization leak" while admitting "it's obviously taken longer than we thought," according to its recent filings.
That's the bad news. The good news is that the transition is mostly behind the company and it is generating results, it's just that the results aren't good enough. The question is will they ever be. The competition is tough, including Google (GOOGL) , and we have seen what has happened when Google enters the fray and changes its algorithms -- see the struggles that Yelp (YELP) had to triumph over.
This one's not an unmitigated disaster, by any means. What it has been is a colossal failure of expectations. And it's not over. When the company reports in six weeks, I think estimates will still have to come down. Given, though, that it has 435 million reviews, including 50 million recently added, and the fact that I know of this company's power from my ownership in the Dubarry Inn, in my hometown of Summit, N.J., I think this $6 billion company might be worth more to another company but not until it reports its next quarter.
Perrigo (PRGO) is in transition. Let me say from the outset that this company, once a fabulous growth stock darling because of its incredible penetration of both drugstore branded knock-off labels and generic drugs, has never recovered from rejecting a hostile bid from Mylan Labs (MYL) that would have given shareholders more than twice the price it currently sells for. I expect the company, with changed leadership since the rejection -- the previous CEO, Joe Papa, well-known to Mad Money fans from his many appearances on the show, now runs Valeant -- will be trying to restore some greatness. To do so it might have to restructure its Tysabri royalty stream, a line of pharmaceutical revenues that had no business being under the Perrigo roof. When it does, which I expect to happen in the first quarter, and the company restructures a losing European business for the better, I bet Perrigo's stock is a buy. However, once again, you can't front-run the changes because, once again, the estimates are too high.
Then there is Vertex Pharmaceuticals (VRTX) , an $18 billion company with a stock that fell 41% after what I regard to be the quintessential reason why so many biotech stocks ultimately get clocked: It had run up huge in anticipation of a new drug approval for a potential cure for cystic fibrosis, which is a potentially extremely large market, perhaps as much as $10 billion in sales in the next decade. The problem is, post-approval, the drug was off to a slower start than expected, although I don't know if it could ever equal the hype. I suspect that when Vertex speaks in January at the all-important JP Morgan Health Care conference, we will hear still more lowered expectations, and I think that might set up a very good buying opportunity.
If you were to look at the companies that round out the rest of the S&P underperformers, save the sixth-largest decliner, Stericycle (SRCL) , off 36%, they look a lot like Vertex. There's Alexion (ALXN) , with its orphan drug Soliris, which has about $3 billion in sales. But the company decided to branch out from its one product model with what now looks like a disastrous acquisition of Synageva for $8.4 billion, and the drugs that came with it have been less than stellar. How bad? We don't know, but if we had to hazard a guess, the recent departures of the CEO and the CFO are hardly reassuring, hence the 35% decline.
Mallinckrodt (MNK) , off 33%, trying to diversify from its generic and opioid drug businesses, bought Questcor (QCOR) and its Acthar drug for $5 billion two years ago. The sales have been good but the shorts have been loud and they have suggested this drug, which is used for rheumatoid indications and multiple sclerosis, will have problems with payers, including the U.S. government, especially under a Trump regime because of its monstrously high cost.
Then there are two stocks of companies that have very real promise that found themselves caught up in the pharma bear market: Allergan (AGN) , down 32%, and Regeneron (REGN) , off a similar amount. Both weren't just mauled by the bear, they were victims of high expectations, the first caused by some aggressive expectations for earnings as part of an aborted takeover bid by Pfizer PFE, expectations that have been reined in to realistic levels, and the second caused by unforeseen competition from Amgen (PFE) and worries about the potential slowing of its main product, Eylea. I think Allergan's just a plain buy, selling at 14x earnings with mid-teens earnings growth, while Regeneron may still struggle until we see better numbers out of some important new drugs that could turn out to be blockbusters. (Google and Allergan are part of TheStreet's Action Alerts PLUS portfolio. Pfizer is part of the Dividend Stock Advisor portfolio.)
One final company that sticks out like a sore thumb is Stericycle. Like so many others in this list, Stericycle's stock was a rock star to many health-care growth managers. But the star was propelled by endless acquisitions that I think masked slowing organic growth. Without more acquisitions, the star has been revealed as subpar.
Look, it could be worse. All of these companies could be like the two biggest losers, Endo and First Solar. They're not. And many, like TripAdvisor, Vertex, Allergan and Regeneron, are either buys or are on the verge of being so.
