Trying to pick out the so-called “winners” of the illustrious distinction of “worst stocks on Wall Street” isn’t an easy task when you consider just how many publicly traded companies there are on Wall Street. The absolute number is upward of 10,000. But the only ones investors should be concerned about are those which constitute the Wilshire 5000 Total Stock Market Index — a collection of more than 3,500 stocks.
The Wilshire 5000 was created in 1974 with approximately 5,000 stocks, but it hasn’t actually contained that many since Dec. 29, 2005. Still, whether we’re talking 5,000 or 3,000, that’s a lot to choose from if you’re trying to identify some of the worst stocks on Wall Street.
Also, the important word here is “of.” I’m not suggesting this is the end-all list of the market’s worst stocks, and trying to actually come to such a ranking would be nearly impossible. But there are a lot of candidates you should avoid at all costs when constructing a diversified portfolio of U.S. stocks.
How do you identify bad stocks? There are many things you can look at, such as consistent losses, no growth, massive debt, bad management, excessive compensation, overpaying on stock buybacks and corporate acquisitions. Generally, you want to identify anything that reeks of poor corporate stewardship.
All that considered, here are seven of the worst stocks on Wall Street:
7 of the Worst Stocks on Wall Street? Tronc (TRNC)
Tronc Inc (NASDAQ:TRNC) is the rebranded Tribune Publishing — the owner of legendary newspapers such as the Chicago Tribune and Los Angeles Times and other media outlets that have won a combined 92 Pulitzer Prizes in their lengthy history.
Forget that Tronc barely makes any money for just a second. This publishing company has already gone ahead and subdivided itself into Tronc M (legacy publishing business) and Tronc X (digital business).
I don’t care if there are 26 different Tronc businesses for every letter of the alphabet. It’s a wounded dog attempting to resuscitate its business through nomenclature rather than significant change.
Bad stock? Yes. Bad name? Absolutely. Worst stock? Possibly. Should you own it? Not on your life. Because you’re free to remember now that TRNC barely makes any money. Revenues are in steady decline, and operating income is tanking. Tronc even produced a GAAP loss in its most recent fiscal year.
Tronc would be one of the worst stocks on Wall Street based on branding alone, but it certainly has the business to back up the accolade.
The Worst Stocks on Wall Street: Sears (SHLD)
Past stock performance shouldn’t be the only barometer for evaluating how bad a company truly is. But Sears Holdings Corp (NASDAQ:SHLD) certainly has done enough damage to itself to warrant it. SHLD has an annualized return over the past five years of around -15%, or about 31 percentage points worse than the S&P 500.
CEO Eddie Lampert’s problem isn’t that he bought a dinosaur with one foot already in the grave — he did — but rather that he failed to hire the best people possible to turn retail’s version of the Titanic around.
Instead, he sold off bits and pieces of the business, fiddled with the real estate, and most importantly, forgot to address the core problem: Customers didn’t like coming to its stores anymore because they were downright ugly. If someone spent $1,000 per year at Sears, they took that money and went elsewhere. Or they reduced their annual spending on clothes, preferring to buy big-ticket items instead.
Either way, Sears gets my nod as one of the worst stocks on Wall Street for failing to follow the No. 1 rule of business: Give the customers what they want.
Lampert hasn’t come close.
The Worst Stocks on Wall Street: Chesapeake Energy (CHK)
Speculators have done well investing in Chesapeake Energy Corporation (NYSE:CHK) in recent months. The idea is that Chesapeake — once thought to be done like dinner — actually has a future. Considering it’s up about 60% in the last three months, CHK’s worst days appear to be behind it.
That doesn’t mean Chesapeake doesn’t have a place among the worst stocks on Wall Street. Because it does.
Chesapeake’s second-quarter press release spoke glowingly about financial discipline, how it had reduced total debt by more than $1 billion, and how the remainder of 2016 would be an exciting time for the company.
Well, here’s the truth about Chesapeake: Its revenues in Q2 2016 were down 54% to $1.6 billion. CHK suffered an operating loss of $1.8 billion. The fact remains that Chesapeake Energy is a company with a history of teetering on the brink of failure. Its late founder, Aubrey McClendon, saddled it with significant obligations in an effort to be the biggest and the best.
Now that McClendon is gone, it might be easy to turn the page on CHK stock. But just because Chesapeake has hit $6 doesn’t mean you should be buying.
Chesapeake has a lot of warts despite its recent efforts to look otherwise.
The Worst Stocks on Wall Street: Viacom (VIA, VIAB)
Philippe Dauman is gone as Viacom, Inc. (NASDAQ:VIA, NASDAQ:VIAB) CEO, replaced on an interim basis by COO Tom Dooley. The company is paying Dauman more than $72 million to exit the job he has held for nearly a decade — a reign beset by controversy and ridicule. Much of that came as a result of Dauman’s excessive compensation while shareholders received little in return.
However, Variety magazine suggests Dauman’s run as CEO was actually pretty good. VIAB delivered a 130% improvement between Dauman’s hiring in November 2006 and early 2014, when shares hit an all-time high of $89.76. Back then, Dauman and Sumner Redstone were still pals.
Then the wheels fell off.
Viacom has lost 50% of its value over the past two years, forcing Shari Redstone to take control of the situation.
The simple reality is that Viacom and CBS Corporation (NYSE:CBS) should never have been separated from each other back in 2005. That was Sumner Redstone’s call. Now that Dauman is gone and Sumner’s daughter is leading the family empire, the calls to merge the two businesses gets louder by the day.
Unfortunately, Viacom’s best days are behind it. Poor decision making by Sumner Redstone led it to this point. Whether Shari can save it is anyone’s guess.
The Worst Stocks on Wall Street: Community Health Systems (CYH)
The M&A highway is littered with failed or poorly performing acquisitions. Large caps allocate huge amounts of shareholder capital to buying companies they believe will help grow the top line while extracting synergies from the merged entities.
Unfortunately, that rarely happens. Community Health Systems (NYSE:CYH) is a good example of what can go wrong.
Three years ago, CYH announced it was buying Health Management Associates for $3.9 billion, a deal that would create the largest for-profit hospital system in the U.S. A bunch of disappointing quarterly results later, CYH is frantically trying to sell off assets to reduce its burdensome debt, which sits at roughly $15.4 billion or about seven-and-a-half times equity.
The synergies expected from the Health Management Associates acquisition haven’t materialized. As a result, CYH stock has lost roughly 75% of its value since the deal was completed Jan. 27, 2014.
Destroying three-quarters of a stock’s value constitutes a bad stock. It CYH the absolute worst stock on Wall Street? Maybe, maybe not, but it belongs in the discussion.
The Worst Stocks on Wall Street: General Electric (GE)
One of the worst things a company can do when it comes to allocating capital is buying back stock at inflated prices. Many large companies carry out share repurchases like it’s a ritual that can’t be missed.
But true stewards of shareholder capital only do so when the stock is cheap.
New Constructs, an independent investment research firm in Tennessee that looks more closely at company filings with the SEC, discussed earlier this year how General Electric Company (NYSE:GE) destroyed shareholder value through stock buybacks by repurchasing shares at the absolutely worst times.
The author of the piece, Sam McBride, points out how GE bought back $12.3 billion of its stock in 2007 at the height of the markets and sold $600 million in 2009 when the markets were at a low. Completely ill-timed capital allocation. Over the past decade, the industrial conglomerate repurchased $44 billion of its stock (likely at 52-week highs, as the 2007 stat suggests) while its shares actually fell 15%.
Jeffrey Immelt may yet get away with this misuse of shareholder funds. GE stock has made a comeback in recent years, up more than 20% in 2012, 2013 and 2015, as General Electric has unloaded many of the financial businesses that weighed it down in the 2008-09 financial crisis.
But that doesn’t mask the fact that GE is badly underperforming the S&P 500 (32% to 107% in total returns) over the past decade. Even when General Electric succeeds, poor cash management is holding it back from its true potential. I still think GE is one of my seven worst stocks on Wall Street.
The Worst Stocks on Wall Street: Yahoo (YHOO)
After spending the better part of four years trying to figure out what to do with Yahoo! Inc. (NASDAQ:YHOO), Marissa Mayer’s only option was to put its operating business up for auction, which resulted in the July sale to Verizon Communications Inc. (NYSE:VZ) for $4.83 billion.
Mayer, just one of many Yahoo CEOs who tried and failed to make the company go, will soon ride into the sunset now that YHOO is simply a holding company with no actual operating businesses.
Imagine where Yahoo’s stock price would be if not for the $1 billion bargain-basement investment in Alibaba Group Holding Ltd (NYSE:BABA) that was made by founder Jerry Yang back in 2005. That’s a lifesaver if there ever was one.
Almost everything since then has gone decidedly worse, with a revolving door of executives unable to revive the once-dominant tech company. Perhaps AOL (owned by Verizon) CEO Tim Armstrong can do something with the Yahoo assets. It’s clear Mayer and the rest of the so-called saviors couldn’t.
In my mind, a lost decade constitutes a bad stock. The sooner it’s off the exchanges, the better.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.