Most investors and analysts are expecting 2015 to be another good year for the market, as earnings remain on the rise and the economy remains in growth mode.
Specifically, Standard & Poor’s expects the S&P 500’s earnings to increase to the tune of 13% this year, while the Federal Reserve has projected GDP growth between 2.6% to 3.0% for 2015.
Not every stock is destined for bullishness this year, however. Indeed, some stocks are apt to struggle in 2015, if not completely collapse.
Which stocks pose the greatest risk of a crash? Here’s a closer look at the four that should worry investors most.
Stocks That Could Crash in 2015: Herbalife Ltd. (HLF)
Is it possible Bill Ackman could be right about Herbalife Ltd. (HLF) after all?
Well … let’s say he’s half-right.
HLF stock is in some serious jeopardy, but not because it’s the illegal pyramid scheme Ackman first argued it was back in late 2012. Herbalife shares could struggle even more this year than they did in 2014 because consumers are less interested in the stigmatized company’s product, and the organization is being forced to spend more to sell it. That’s taking a toll on the bottom line.
For perspective, in the third quarter of 2014, Herbalife managed to improve its sales from $1.213 billion last year to $1.25 billion this time around. But a surge in selling expenses drove earnings down from $1.32 per share of HLF stock in Q3 2013 to only 13 cents per share in the third quarter of 2014 (though some currency volatility also helped sap the bottom line).
The prod for weakness was some major — and expensive — initiatives undertaken to appease the regulators who started to nose around Herbalife’s operations after Ackman made his case.
The probes and resulting expenses are apt to worsen before they ease up, however, and owners of HLF stock are quickly losing patience after shares already were cut in half in 2014.
Stocks That Could Crash in 2015: RadioShack Corporation (RSH)
The struggle that RadioShack Corporation (RSH) has been through over the past couple of years isn’t exactly a veiled secret. Not only has the electronics retailer posted a loss in nine straight quarters, but those losses have been getting consecutively bigger on a year-over-year basis.
Barring some sort of miracle in the fourth quarter of 2014, RadioShack is expected to post a 10th consecutive — and bigger — quarterly loss when it posts Q4 2014 results in March of this year.
So what, pray tell, did a trio of hedge funds see in RSH that prompted them to offer a $535 million loan to keep the company afloat and give it time keep working its turnaround plan?
As it turns out, probably nothing. Instead, those funds may have had even bigger bets that cash-strapped RadioShack wouldn’t default on its existing loans, and the best way to make that happen was simply to supply it with the cash the struggling retailer needed.
Those were limited-time wagers, however, and a major tranche of them expired a couple of weeks ago. Now there’s no real motivation to keep the cash-burning retailer alive, so those loan offers might not materialize again in 2015.
Stocks That Could Crash in 2015: GlaxoSmithKline plc (ADR) (GSK)
While it might be an overstatement to claim GlaxoSmithKline plc (ADR) (GSK) is headed over a cliff in 2015, it wouldn’t be inaccurate to suggest GSK stock could run into real trouble.
The woes all stem back to the proverbial shot heard ’round the biopharma world in December, when Express Scripts Holding Company (ESRX) and AbbVie Inc (ABBV) inked a deal that left AbbVie competitor Gilead Sciences, Inc. (GILD) out in the cold.
The long and short of it is, the pharmacy benefits manager agreed to exclusively offer/reimburse AbbVie’s hepatitis C drug (and drop comparable drugs from Gilead) if AbbVie provided its hep-C drug to Express Scripts at a steep discount to the normal market price. Though such deals had been done before between drugmakers and care providers, this was the highest-profile one most investors have ever seen.
What’s this got to do with GlaxoSmithKline and anyone who’s holding GSK stock?
A lot. Not only is it likely that more insurer/pharmaceutical-maker deals like this one will be made now that gauntlet has been thrown down, but GlaxoSmithKline is particularly vulnerable to such deals. Although its top-selling drug Advair is back on Express Scripts’ approved formulary for 2015, it now sells at a greatly reduced price, and the pharmaceutical company has been scrambling (a little desperately) to find a way to rejuvenate a struggling sales effort.
Stocks That Could Crash in 2015: BlackBerry Ltd (BBRY)
Last but not least, kudos to BlackBerry Ltd (BBRY) for taking a shot at Apple Inc. (AAPL), Samsung (SSNLF) and Nokia Corporat (ADR) (NOK) on the smartphone front. But the company played its best hand, and it just wasn’t good enough. The competition is simply too entrenched, and Blackberry’s loyal followers are thinning in number.
The end is in sight.
That best shot was the launch of the Z3 in May of last year following the launch of the Z10 in early 2013. Both were ballyhooed by investors as the pivot point of the turnaround effort, and to those who specifically need a BlackBerry phone, both devices got rave reviews. The Z10 barely moved the revenue needle the quarter it was launched, however, up only 9% on a year-over-year basis. The Z3 didn’t even make a dent in the revenue downtrend.
Between the two disappointing launches, it’s becoming clear that quality is irrelevant. BlackBerry phones are indisputably high-quality devices. The challenge is simply that not enough people want them now that other, more recognizable brand names dominate the market.
It’s not a QWERTY keyboard or a touchscreen that sells phones or prevents them from being sold. It’s the availability of apps and vanity marketing — two aspects of the business where BlackBerry decidedly struggles.
And software/service sales just aren’t going to cut it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.