After all, investing as its essence is a bet on the future. More specifically, it’s a gamble — for the most part — that things will get better. Rarely is it advisable to abandon all hope. Every year, a wide assortment of stocks fall out of favor and appear to have bleak prospects. But a new year can bring a reversal of fortune. And next year, that pattern is likely to repeat.
So, what are some stocks that have been beaten down like a rented mule this year but offer the possibility that 2012 may be better than 2011? Here are my six picks for the biggest turnarounds in the year to come. Sticking their necks out with me on most of these are Wall Street analysts, who see these stocks offering significant upside. In alphabetical order:
American International Group (NYSE:AIG)
2011 performance: (-59.3%)
Recent price: $23.47
Average 52-week price target : $27.25
P/E, trailing 12 months (TTM): 5.35
The beleaguered insurer has lost at least $1 billion in 10 out of the last 15 quarters. Its latest results were particularly awful, posting a $4 billion loss, but those included a huge impairment charge for its aircraft leasing business. Furthermore, 2011 was a catastrophe year insurers would prefer to forget. The U.S. alone had a dozen $1 billion weather disasters, the most in 30 years of government data. Let’s not forget the many foreign natural disasters including Japan’s earthquake and tsunami (and the very unnatural nuclear accidents) and the floods in Thailand.
Reasons for hope: AIG, which was bailed out in 2008, has substantially delevered its balance sheet as it prepares for regulation by the Federal Reserve. It doesn’t owe the government a dime. The U.S. Treasury Department is eager to unload its 77% interest in the New York-based company, which should serve as a catalyst for the stock along with a $1 billion share buyback that AIG recently announced. A rebound in the U.S. economy should help AIG as well. The company’s bad luck can’t last forever.
2011 performance (-36.78%)
Recent price: $9.72
Average 52-week price target: $12.85
P/E (TTM): 10.31
CEO Klaus Kleinfeld spooked investors in October with his downbeat take on the global economy and disappointing third-quarter results. He was even quoted as saying: “It almost looks like the world is worrying itself into another recession and that should not be allowed to happen.” A 20% decline in global aluminum prices did not help matters either.’’
Reasons for hope: Automakers are huge buyers of aluminum. Trade association data shows that transportation applications accounted for 23.7% of all aluminum shipments — 4.22 billion pounds — in 2009. Keep in mind that auto sales have rounded since then. J.D. Power is forecasting that 2012 light vehicle sales will reach 13.8 million. Though that is lower than an earlier forecast, it represents an increase over 2011’s forecast for 12.6 million units. About 12% of shipments are used in the construction sector, which also should rebound, provided that the economic recovery doesn’t falter too badly.
2011 performance (-59.04 %)
Recent price: $70.33
Average 52-week price target: $91
P/E (TTM): 16.34
Everything that could go wrong did for Netflix in 2011. In July, it got heat for raising the price of DVD and online movie packages by 60%. The company caught even more grief a few months later when it announced plans to spin off its DVD rental business into a new company with the bizarre name of Qwikster. CEO Reed Hastings apologized for the inept way that the price hike was handled and canceled plans for the spin-off. It did little good. Netflix hemorrhaged 800,000 customers in the third quarter alone. It was the company’s first net customer losses ever.
Reasons for hope: Hastings’ blunders can be reversed through smart marketing. Its overseas push should help as well. Even amid the public relations disaster, domestic revenue grew 44% in the third quarter. Its customer base of 23.8 million, though diminished, remains formidable.
Sears Holdings (NASDAQ:SHLD)
2011 performance: (-17.98%)
Recent price: $59.34
Average 52-week target: $42.67
P/E (TTM) N/A
Eddie Lampert’s retail empire has been bashed regularly for years. It’s easy to see why, given how sales have slumped for 19 straight quarters. The latest earnings were dismal, posting a net loss of $421 million, or $3.95 per share, versus loss of $218 million, or $1.98, a year earlier. Other retailers including Target (NYSE:TGT) clearly are faring much better.
Reasons for hope: The strong holiday season should benefit the Hoffman Estates, Ill., firm along with its competitors. CEO Lou D’Ambrosio, who joined the firm earlier this year, is emphasizing licensing deals — such as one with the Khardashians — smaller stores and e-commerce deals. He’s also trying to get a better tax deal from Illinois, which should help as well. This is my dark horse pick — Wall Street sees SHLD continuing its slide next year.
General Motors (NYSE:GM)
2011 performance (-40.48%)
Recent price: $21.35
Average 52-week target: $34.67
P/E (TTM): 4.67
Last month, the automaker scared the bejesus out of investors by reporting worse-than-expected quarterly results largely because business in Europe, where it gets about 18% of its global sales, was especially dismal. Latin America was weak as well. CEO Dan Akerson said GM’s performance in those regions was “not sustainable and not acceptable.” Investors obviously agreed.
Reasons for hope: A recovery in the U.S. economy should help. Auto sales in GM’s home market are expected to rise in 2012, though at a lower rate than some originally expected. China, another key GM market, is expected to grow at a whopping 9.2%, which also is down from earlier projections but is nonetheless outstanding.
Goldman Sachs (NYSE:GS)
2011 performance (-37.48%)
Recent price: $100.48
Average 52-week target: $138.13
P/E (TTM): 15.36
Though it’s tough to feel sorry for Wall Street’s 1-percenters, some had a tough year in 2011. For New York-based Goldman, it was especially hard. It reported its second-ever loss as a public company in the third quarter as its investment portfolio lost billions in value because of the market’s volatility. The investment banking business lost $2.48 billion.
One investment manager called Goldman the “best house in a bad neighborhood.” That sums up the situation perfectly. Goldman will get its share of the high-profile IPOs expected in 2012 — valued by one expert at a whopping $30 billion — including Facebook. Cheap stock values should lead to increased M&A activity in 2012, according to a recent Deutsche Bank report. The bank that has more than its share of detractors should do well by investors in 2012.
No matter how you fared in 2011, here’s to a healthy, happy and prosperous New Year for all.