It has been a heck of a year for the S&P 500, with the benchmark index up about 19% so far in 2013 as we close the books on the third quarter.
Unfortunately, just because the broader market is up strongly doesn’t mean that all companies are caught up in the buying party. In fact, a number of investments have struggled mightily this year even as things are looking up across most of Wall Street.
Each one of these duds has a different story, but the bottom line is that when industry-wide pressures conspire with poor management and execution … the results are downright ugly for investors.
Here are the 7 worst stocks in the S&P 500 so far this year, down 20% or more during the first nine months of the year:
Year-to-Date Returns: -23%
Agricultural chemicals company Mosaic (MOS) hasn’t had a great few years, but seemed like a stable bet in a world where the overall population is growing all the time and farming enough food for all those people is becoming increasingly difficult.
But in July, Russia’s Uralkali — a similar business — disrupted one of the world’s largest agricultural chemical partnerships by ending a joint venture … announcing plans to go it alone, and thus flood the market with more product. Because of a huge production jump, then, global prices for the fertilizer potash are expected to decline by as much as 25% in the next year or so.
Although half a world away, the news was big and Mosaic got caught up in the mess this July. MOS saw a sharp selloff in late July as a reslut, giving up more than 20% in just a few sessions.
Mosaic is trying to adapt, slashing its outlook and its production in reaction to the news. But it could take a few more months for this to shake out, as the agricultural chemicals space remains very much in flux from the landmark news this summer.
#6: Edwards Lifesciences
Industry: Medical devices
Year-to-Date Returns: -24%
Although it’s an S&P 500 component and a healthcare player valued at almost $8 billion, Edwards Lifesciences (EW) isn’t really a household name. So if you’re unfamiliar, the company produces devices to treat structural heart disease including synthetic valves and related tools to repair diseased hearts.
It’s a noble mission, and with heart disease as America’s No. 1 killer, you would think that EW would be doing just fine. But unfortunately, in April the company posted an ugly outlook on slower sales that caused a decline of more than 20% in one session — the worst one-day flop since the dot-com days right after its IPO.
The fact that Edwards guided down sales and profits so much was bad enough, but before the crash and burn it was trading for more than 30 times forward earnings … and when a stock trading for a high multiple misses the mark, the fall from grace can be fierce.
Edwards seems to have stabilized and regrouped, and continues to expand its approved uses for various valves. However, companies like Medtronic (MDT) are trying to compete and undercut on price, and there’s no guarantee that Edwards won’t suffer further sales trouble — and further stocks declines as a result.
#5: Abercrombie & Fitch
Year-to-Date Returns: -26%
While Abercrombie & Fitch (ANF) is known by some for its iconic models and racy catalogs, the vast majority of teen customers seem to be tuning out ANF and its sister brand Hollister in 2013.
Consider second-quarter sales showing a 10% decline at stores open at least a year, which sparked a roughly 25% selloff in about a week this August.
Bargain hunters might be inclined to write off the declines as a one-shot deal, with negativity now priced in. But roughly 13% of available shares are still held short, meaning a bunch of bears are expecting continued declines even after the crash and burn.
Retail broadly is facing some headwinds amid tepid consumer spending, but if ANF remains out of favor heading into the all-important holiday shopping season, it could get even worse for Abercrombie investors.
#4: Peabody Energy
YTD Return: -34%
Peabody Energy (BTU) has been around since 1883 and bills itself as the world’s largest private coal company. That’s a great thing to tout when the coal biz is going well … but an ugly reality when things sour.
Coal has been taking a beating for a while, both because of the manufacturing slowdown in China and general softness in energy demand in the West. But when you throw in recent moves toward less-polluting energy sources — from solar and wind even to the comparatively cleaner fossil fuel natural gas — it has been the death knell for the industry at large and Peabody in specific.
Peabody has managed to slash costs to get back to breakeven (and possibly above), at least if projections for fiscal 2013 hold, but it might not mean an escape from the depths of the S&P 500’s worst stocks. President Obama just dropped the boom on the coal industry with costly new regulations, and there could be more pain to come.
#3: Newmont Mining
YTD Return: -40%
Newmont Mining (NEM) is one of the largest gold miners in the world — or at least, one of the largest miners primarily focused on gold. So it’s no surprise that with gold prices off about 25% this year that Newmont has felt the pain.
But why an even bigger flop for the gold miner vs. the precious metal?
Well, for starters, consider that Newmont is in the uncomfortable position of financing a highly capital-intensive mining operation. That means it has had to issue more shares to raise cash in recent years and take on more debt — something that seemed like a good idea in 2009 and 2010 when gold prices were sky-high, but something that accelerated the stock’s decline once things turned.
Throw in the fact that NEM was paying a dividend of 43 cents a share to start the year but just paid 25 cents a share in September — a 41% dividend cut in just a few months — and you can understand why traders are fleeing Newmont faster than they are giving up on gold.
#2: Cliffs Natural Resources
Year-to-Date Returns: -46%
Another metals and mining stock that has been battered by the China slowdown is Cliffs Natural Resources (CLF). This Ohio-based materials stock operates mines for both iron ore and metallurgical coal, which is used to turn iron into steel.
What with the lack of industrial demand globally, but particularly in China, Cliffs has been brutalized during the past few years. In fact, the 46% decline making CLF one of 2013’s worst stocks is nothing compared to a roughly 80% decline since its 2011 peak of about $100 a share.
Cliffs operates in North America, Latin America and the Pacific, so the strong dollar has made the profits even harder to come by as exchange rates create a headwind for international sales.
Cliffs has managed to return to profitability; however, the company has seen six consecutive quarters of year-over-year revenue decline… so it’s hard to think of Cliffs as at or near the bottom until revenue actually turns around, or at least stops slipping.
YTD Return: -54%
What can you say about JCPenney (JCP) other than this is a stock on its last legs? the decline of big box retail in general played a role in the stock’s troubles, but utter mismanagement has pushed JCP to the brink.
The retail giant started 2013 with hopes of a turnaround under former Apple (AAPL) retail exec Ron Johnson, which included ambitious “store within a store” kiosks and the end to a long history of one-time sales and coupons. But loyal shoppers weren’t buying it, and a steady and dramatic bleed in sales ultimately led in the ousting of Johnson and the re-installation of Mike Ullman — the CEO who presided over JCPenney’s slow decline, as opposed to its more recent flame-out.
Sales still are slipping, losses are huge and there are rumors that JCP won’t be able to make its debt payments — which, if true, could signal a complete collapse of the stock.
If you think JCP can’t go any lower, remember stocks that go bankrupt go to zero.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he had no positions in the stocks mentioned. Write him firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.