When you scan the top losers for the fourth quarter of 2018 you are stunned; you are given the benefit of hindsight and it is a remarkable gift.
First up is Nvidia (NVDA) and what a year it has been for a stock that has gone from being the nickname of my dog Everest to being the actual dog in the entire S&P. I can't believe this historic leader has fallen so far.
I think that the guide down here was so monumental and so definitive that you know you have to wait not one, but two quarters before you can buy this high quality maker of computer graphics devices that go into gaming, autonomous vehicles and data centers. Talk about three secular growth themes that seem to have been tapped out. That's why this stock really fell from $280 to $127 and its astronomical PE has now shrunk to a reasonable 18 times forward earnings. I have never seen it this cheap which means, most likely, that numbers have to come down. The proximate cause? Too many crypto maniacs bought cards, used them and then returned them so they are stuck in the channel.
I do believe that backlog will be cleared up this quarter and I also think that its new chips, the Turing, will begin selling well this year. My take? If you buy Nvidia now you have to suffer through one more quarter and then you are home free.
Call me intrigued but patient. Half position patient. Why not more aggressive given the company's storied history as a winner? Apple (AAPL) which will take the whole cohort down to less lofty levels and gaming, which is clearly slowing as a worldwide concept.
Newfield Exploration (NFX) reminds me of IBM (IBM) : it decided to double down on oil and gas by buying the relatively cheap Encana near what it thought would be the bottom in oil and gas. That said, if you think, as I do, that oil's bottoming, I actually like this one. I wish the majors were to take advantage of these staggering declines in the group. The deal was in all stock, no cash, just want the majors could do if they had Newfield's foresight. I would be a buyer if you think oil and gas are bottoming after an enormous crash.
I am drawn to PG&E (PCG) the lowest utility on the totem poll. Sure I know the liability here after the fires and its potential culpability but the street is littered with utilities which have, over the years, come back from fated errors of management, even as this one is about as bad as it gets save a China syndrome meltdown.
I would bet it makes a comeback given the strength of its California franchise. It's a bottom fishers delight.
What can I say about Coty (COTY) ? These knuckleheads bid $10 billion for the $600 million Avon six years ago and I have always thought it was in this company's DNA ever since to screw-up. I just can't see a comeback here of any merit and would much rather count on Estee Lauder (EL) for a huge upgrade. Sure Coty can bounce, but so did my cat Komag after it got run over by a 18-wheeler on a country road in Bucks County Pa. I would rather bet on Komag than Coty.
Wow, Align (ALGN) , how in heck did Align drop 46%? Pretty easy in retrospect: we had others come in to take away their near monopoly including 3M (MMM) which has every intention of owning the market. Remember a 3M sees its multiple enhanced by competing with Invisalign, which his Align's bread and butter. I see price cutting ahead and that's terrible for margins. Given the monster move it has had - and the head and shoulders stock pattern here - I think that it's too early to speculate on a turn in the stock. Way too early. And may I add that "dental" has been a challenged territory for anyone who enters it. Don't take the bait.
Nektar Therapeutics (NKTR) wasn't very therapeutics to owners but I will say this: down 46% seems extreme to me for a stock that does have a pipeline of drugs and a balance sheet that's not from Hades. I just don't have a catalyst and without one I can't recommend it for anything other than a bounce. Hard pass.
Let's broaden our horizons for a moment because the down and dirties have some intriguing names in them, starting with the seventh worse performer, Perrigo. This company's become a monster disappointment ever since it turned down a $26 billion unsolicited bid from Mylan. It's now worth $5 billion.
This knock-off company used to be one of the great growers. Now it is known for systematically screwing things up and missing numbers. That said, I can't countenance selling it down here. Not at nine times earnings. What makes me unlikely to recommend it? I want to see the whites of their eyes. CEO Murray Kessler needs to surface from the bunker and tell us a story about why this is the level to buy Perrigo (PRGO) . Without some sort of totem, something to hang on to, all I see is another round of estimate whacks that makes the nine times forward earnings projection a tad chimerical.
We have a plethora of oils and oil related companies to plow through. I covered Newfield, but as I eyeball the nasties I spot Marathon Oil (MRO) and Schlumberger (SLB) . If past is prologue and you think oil is stabilizing here, as I do, these intrigue. The numbers may not be too high. I think both are worth holding and we have been telling club members of Action Alerts PLUS that selling Schlumberger down here with a 5% yield just seems plain wrong.
Let's just briefly touch on some other winners turned losers. If you think gaming can make a comeback as I do, you are most likely drawn to Activision Blizzard (ATVI) . I never thought I would see this company's stock selling for 18 times earnings, but then again I never thought that I would see Take-Two (TTWO) trading at 20 times earnings even as it has a vastly superior product portfolio right now. A bet on ATVI is a bet on a comeback that seems within reason. I'd be a buyer of some and then wait for the quarter for the rest.
What can I say about Tiffany? Its fall from grace, or I should say from $139 to $79, is just plain wrong in my opinion. During the fourth quarter we saw an incredible collapse of anything high end connected to brick and mortar and wealth: it's like the wealthy shopper just froze. But I like the management team here. I like the price - 17 times earnings, and I think the stock's a buy. Please monitor the dollar; the correlative is so strong that you will get a retreat in the stock if you are not careful.
I have a Jay Powell stock: if you think as I do, that the Fed is really targeting employment - perhaps without even knowing it is, than this pernicious strategy will deck United Rentals with a stock that fell from $170 to below $100 - I am not counting the little rally at year's end. That's because it's a pure play on construction including oil and gas construction. The stock is incredibly vulnerable to more rate hikes and more oil cuts. I think that you will get the former but the latter may run its course next earnings report card. I believe you may have to buy it first, or at least some, if you think Powell actually pays attention to the wake of his actions as they impact stocks. Suffice it to say that URI could be a big winner if oil bottoms and the Fed comes to its senses.
Not really. In the meantime CEO Mike Kneeland will no doubt be buying with you.
Best for last: Conagra (CAG) . Here's a company that just got had when it overpaid for Pinnacle which is turning into one of the most disastrous acquisitions of all time. The positive? The company now owns the frozen food aisle which is a millennial favorite. The negative. Management can't fix the Pinnacle portfolio, of which it paid $8 billion for - maybe 50% too much - in a quarter. But it can six months from now. With a 4% yield all I can say is patience might be a virtue, at least if you wait until right before the next quarter's report.
You know what? I see a lot of winners here because of hindsight. It's 20-20, or even perhaps, 10-10, fertile ground for those who believe ugly ducklings can turn back into swans.