by Kyle Woodley | March 27, 2012 12:00 pm
Don’t call it a comeback. Not yet.
Tiger Woods’ win at the Arnold Palmer Invitational wasn’t without its headline excitement value. It was Woods’ first victory in almost three years and the most solid evidence we’ve gotten to date that he might be able to reclaim his former glory. But it’s far from enough. The PGA is as competitive (and confident) as Woods has seen, and Tiger’s age (36) isn’t doing him any favors. The fact is most fans and pundits will need to see more than a Masters tune-up win before declaring the comeback official.
Still, everyone loves a comeback story — and that’s not exclusive to sports. Apple (NASDAQ:AAPL) is a Wall Street favorite for the sheer excess of money it has made shareholders, sure, but how much did we fawn over Steve Jobs for the return-and-rescue job he did? The answer: a lot.
The big difference is if Woods falls flat in the Masters, then eventually peters out and retires without another major championship, you won’t lose a dime. But if you get wrapped into a comeback investment story that goes stale, you could be on the hook for a lot of cash. So before sinking your money into one of these stocks generating a little excitement lately, take a breath and consider waiting for a little more proof before diving in.
Just as divisive a topic as Tiger Woods, Bank of America (NYSE:BAC) was long a growing king of American banking and at one point was the largest financial company in the world. At their high point, BAC shares traded for almost $55. Cue the financial crisis, bailouts, Merrill Lynch, Countrywide…a host of crises later, BofA’s stock hit a bottom near $3, and the company all but abandoned its dividend.
Bank of America spent more than three years trying to claw out of the muck, but it underperformed rivals like JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) and stumbled again, dipping below $5 late last year. But 2012 has looked like a possible turning point for BofA. BAC shares are up a whopping 80%, and the bank was given a clean bill of health in the Fed’s latest financial “stress tests.”
Just like Tiger, BofA is showing promise — but we’ll need to see more. For one, its monster gain has been part of a fantastic broader financial rally, with the Select Sector Financial SPDR (NYSE:XLF) up more than 20% year-to-date. BofA returned to profitability with $1.4 billion in net income for 2011, but it also ate a double-digit drop in revenues.
And while BofA is celebrating its passing stress-test grade, consider it a “C” because the bank refused to join the parade of institutions sniffing around for a dividend payout increase — likely because it already knew the Fed wouldn’t approve one. Not to mention the stress tests ultimately were designed as a test of a bank’s readiness to survive disaster, nothing more.
Sears Holdings’ (NASDAQ:SHLD) so-called “comeback trail” seems to be in price only. While the stock has ripped off incredible 125% returns year-to-date, most of that has come on seemingly little substance.
In fact, Sears’ most recent earnings report was an absolute disaster. The company saw declines in both revenue and profits for both the fourth quarter and full year, which included a swing from profitability in 2010 to a $3 billion loss in 2011. Meanwhile, same-store sales continued to decline across its Sears, Sears Canada and Kmart stores.
Not to mention Sears’ run, while impressive, is comparatively muted. At around $70, SHLD shares still are less than half their 2007 peak value, and a short squeeze likely helped fuel some of these year-to-date gains.
In reality, Sears is a retailer struggling not just against the online march of companies like Amazon (NASDAQ:AMZN), but even other bricks-and-mortar outfits. And so far, its primary strategy appears to be closing or selling stores. Sears seems to have pleased investors so far, but it won’t stage a real comeback by merely shedding weight.
Few companies can understand a fall from grace quite like Netflix (NASDAQ:NFLX). An announced price hike in summer 2011 was sure to cause discontent across the streaming video giant’s user base, and it weighed on NFLX shares. But the logistical quagmire of Qwikster truly irked subscribers and soured many on the brand — and leadership. Through it all, investors hacked away at NFLX, taking it down from almost $300 per share to the mid-$60s by the end of 2011.
But Netflix has bounced back this year, up 75% and well back above triple digits. In its fourth-quarter earnings report, Netflix said it gained 610,000 U.S. customers, bringing the count to 24.4 million customers — just shy of the 26.6 million it reported before announcing the price hike. And the company has the potential for new life in the form of international expansion or possibly partnering with cable companies to offer a premium on-demand service, among other options.
Still, no one can say for certain that Netflix “is back.” The company faces a glut of competitors — Google’s (NASDAQ:GOOG) YouTube, TV-industry-backed Hulu, Amazon and a host of others — all while content providers are starting to realize they can choke some real licensing money out of the pack, putting a cramp on the quality and quantity of what Netflix can offer.
NFLX is at least showing signs of getting its act together, but it’s still tinkering with its business too much — making it difficult for investors to tell whether the resurgence is being built on something real.
Kyle Woodley is the assistant editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley.
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