With the help of Capital IQ, we looked at the S&P 500’s 10 worst performers year-to-date as of Dec. 8. We then got rid of stocks where analysts saw no nope of a rebound. Then we cut the list further by keeping only those companies where analysts are forecasting a share price gain by at least 25% over the next year. That left us with five dogs of 2011 that could have their day in 2012.
Each company on our list has good reason for its stock’s precipitous decline this year, but there’s also reason to hope for a rebound in 2012. This group, like our recent picks of top performers of 2011 that may rise again in 2012, is surprisingly diverse — featuring financial service and cable-TV companies along with Netflix, which is ending 2011 as everyone’s favorite corporate punching bag.
Here’s the list, ranked in descending order of potential upside.
Bank of America (NYSE:BAC)
2011 decline: 58.1%
Recent trade: $5.34
Average one-year price target: $9.72
Potential upside: 82%
What went wrong? For the Charlotte, N.C.-based financial services firm, the answer is pretty much everything. It lost its ranking as the largest bank by assets to JPMorgan Chase (NYSE:JPM) and continued to be mired in the mortgage mess it created for itself through its 2008 acquisition of Countrywide. BofA swung to a profit in the third quarter largely due to an accounting gain and the pretax benefits it earned by selling its interest in a Chinese bank. In November, the company announced plans to slash 30,000 workers over the next few years in a bid to save $5 billion annually. Let’s not forget the uproar over the bank’s $5-a-month debit card fee that was so intense it got scrapped before it started.
Reasons for hope: CEO Brian Moynihan’s cost-cutting may start bearing fruit in 2012. BofA is also making progress in extricating itself from the mortgage mess. It modified more than 52,000 loans in the third quarter, up from 50,000 in the third quarter of 2010. Moreover, expectations won’t be tough to beat. “The bar is just so low for them right now, anybody could jump over it,” Paul Miller, analyst at FBR Capital Markets, recently told Reuters.
MEMC Electronic Materials (NYSE:WFR)
2011 decline: 62.7%
Recent trade: $3.82
Target price: $6.40
Potential upside: 67%
What went wrong? MEMC, a maker of silicon wafers, has had so much go wrong that it’s tough to figure where to start. For one thing, the solar market collapsed, as cash-strapped European governments that were big backers of the technology slashed their generous subsidies. In addition, solar projects were increasingly difficult to get funded. NEMC’s solar material business sells silicon wafers for solar systems, while its SunEdison business designs and finances such systems and sells their electricity. On Dec. 8, the company announced a trifecta of bad news: Layoffs of 20% of its staff, a reduction in capacity and a cut in its earnings outlook. As if that weren’t enough, Standard & Poor’s announced it had put the company’s already junk-rated debt on watch for a possible downgrade.
Reasons for hope: Solar power systems are priced so low that they may become economical for more people. Plus, MEMC is reducing its exposure to the solar materials business. Institutional investors are also loading up on the shares.
Monster Worldwide (NYSE:MWW)
2011 decline: 69.1%
Recent trade: $7.83
Target price: $12.81
Potential upside: 63%
What went wrong? Monster Worldwide has struggled along with the broader economy. Fewer jobs meant less need to advertise for them. Investors were further spooked by the New York company’s lackluster fourth-quarter guidance. Then there’s the relevance problem. Competition from LinkedIn (NYSE:LNKD) is expected to hurt the New York-based company. According to JPMorgan, LinkedIn’s Hiring Solutions business will reach $384 million in revenue next year, an increase from $243 million in 2011. Monster and rival CareerBuilder generate about $2 billion in annual revenue. Let’s not forget about other competitors such as Facebook and Dice Holdings.
Reasons for hope: With more than 150 million resumés on file, Monster won’t disappear anytime soon. Business also is picking up. Third-quarter bookings rose 20% to $264 million, including an $8 million currency benefit. Revenue is expected to grow 17% to 18% this year. The company would seem to be a good candidate to be taken private given that its brand is so well known and that it makes money.
Cablevision Systems (NYSE:CVC)
2011 decline: 58.5%
Recent trade: $14.14
Target price: $21.48
Potential upside: 51.4%
What went wrong? In a nutshell, the Dolan family’s media empire is bleeding customers. About 19,000 video customers quit the Bethpage, N.Y., company in the third quarter. Though that’s less than analysts expected, it’s still pretty bad. Earnings in the quarter fell 65%. Cablevision faces stiff competition from Verizon Communications’ (NYSE:VZ) FiOS service among others in its home market. Todd Mitchell, a Brean Murray Carret & Co. analyst, told Bloomberg News that “Cablevision has the most difficult competitive situation of any of the major cable operators.”
Reasons for hope: Rumors have it that the Dolans wants to unload Cablevision on either Comcast (NASDAQ:CMCSA) or Time Warner Cable (NYSE:TWC). The family also may be interested in taking Cablevision private. It’s an attractive property. In the third quarter, it had high-speed data and voice line additions of 16,900 and 38,200, respectively. Adjusted operating cash flow was $539.3 million during that same time.
2011 decline: 60.5%
Recent trade: $72.11
Target price: $91
Potential upside: 28.2%
What went wrong? The blunders Netflix CEO Reed Hastings made in 2011 will be studied by generations of business students. First was the poorly executed 65% price hike for its popular streaming and DVDs-by-mail plan. Then came the equally botched idea to separate the separate the DVD service into a bizarrely named entity called Qwikster. Hastings killed Qwikster, but it was too late. About 800,000 customers quit the service between June and October. But as paidContent.org recently noted, the bad news keeps coming. “Recall that Netflix is in a dreadful bind,” the site noted. “The company is burning through cash at a time when content owners — many of which are developing streaming services of their own — are demanding exorbitant sums to share their shows.”
Reasons for hope: The rumor mill is in high gear that Verizon wants to buy Netflix. If that deal never happens, an acquisition by Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) or Amazon all make sense as well. In any case, Hastings has to act fast or face having his customer base wither to nothing.
Jonathan Berr does not own shares of the stocks mentioned here