What a year it has been. We came into the year strong, as stocks continued to push to new all-time highs in February. Shortly after, volatility swept through, leaving a trail of destruction. Obviously that has left a number of worst investments of 2020 to highlight.
I can’t think of an industry that has not been affected by the novel coronavirus.
Many businesses experienced a crushing blow to their revenue and had their liquidity challenged. Others saw an enormous spike in demand for their products and/or services.
If not for the Federal Reserve, this situation could have been much worse. That’s even as the major U.S. indices absorbed a 35% peak-to-trough decline in just over one month of trading. Without the boost in liquidity, there’s no telling how bad this year could have really been.
While there were plenty of bankruptcies and stocks that moved to over-the-counter trading, the worst investments of 2020 go beyond a few individual names. Certain sectors and countries also made the list. Let’s look at seven of them now.
- Luckin Coffee (OTCMKTS:LKNCY)
- Chesapeake Energy (OTCMKTS:CHKAQ)
- United Airlines (NASDAQ:UAL)
- Carnival Cruise (NYSE:CCL) and Norwegian Cruise Line (NYSE:NCLH)
- J.C. Penney (OTCMKTS:JCPNQ)
- Energy Select Sector SPDR ETF (NYSEARCA:XLE)
- iShares MSCI Brazil ETF (NYSEARCA:EWZ)
Worst Investments of 2020: Luckin Coffee (LKNCY)
Luckin Coffee is definitely one of the worst investments of 2020, and not just because of the pandemic. If anything, Luckin would have been just fine through the pandemic, given how well Starbucks (NASDAQ:SBUX) has done in China since the coronavirus began.
Luckin stock has been performing better lately, with a couple of sharp jolts higher. But you don’t find a stock on the over-the-counter exchanges because it’s high quality.
In January, shares fell as much as 27% in a single day before recovering some of those losses. The single-day decline ended up clocking in at just under 11% after a short-report that was alleging fraud hit the wires.
While the company denied the reports, a few months later on April 2, shares closed lower by 75% once it was clear there really was fraud.
Less than a year after going public, Luckin stock was halted for trading before being delisted from the Nasdaq. What an ugly ride it has been.
Chesapeake Energy (CHKAQ)
I won’t only be looking at the stocks that ended in the wastebasket, but it’s hard to leave them off the list when it comes to the worst investments of 2020. Another name that belongs on there is Chesapeake Energy.
The energy space was obliterated this year. At one point, oil prices went negative!
For Chesapeake, the company needed everything to go right. Its balance sheet had too much debt and its business wasn’t dependable or profitable enough. Because of its precarious financials, Chesapeake was trying to thread the needle — it needed to be almost perfect in its execution and have the energy markets act well.
At the end of the day, no matter how well the company executed, it couldn’t have survived the onslaught of 2020. That’s pretty clear, with shares down 98.8% this year.
United Airlines (UAL)
Let’s shift gears here and focus less on the bankruptcies and fraud, and look at some of the stocks that are still in play. Of the major airline stocks, United Airlines has been the worst performer.
The stock is down over 50% so far this year. Of the five major airlines, the next worst performer is American Airlines (NASDAQ:AAL), down “just” 44%.
Ironically, United Airlines hit its 2020 high on the first trading day of the year. It proceeded to fall more than 80% to its low on March 18.
Some of the worst investments of 2020 have come from the travel industry. The airline space was hit quite hard, although the U.S. government was able to step in and help. By bolstering the balance sheets, United and its peers were able to survive for another fight.
However, one should note that it will take years for the industry to fully recover. While a vaccine is making its rounds now and flight traffic is up, even management teams believe it will take time to fully recover.
Carnival Cruise (CCL) and Norwegian Cruise (NCLH)
Given our discussion on travel stocks and how they were so adversely impacted, it should come as little surprise to see cruise stocks on the list.
Why did I include two? Simply because they have both performed so poorly.
For the moment, Carnival is down just slightly more, off over 57% so far on the year. But down 56% year to date and Norwegian isn’t too far behind. With Royal Caribbean (NYSE:RCL) down 45% for 2020, it hasn’t fared well, but it’s done better than the others.
This group has really struggled this year and given the poor publicity with Covid-19, it’s no surprise. With that said, the cruise industry has strong demand from its loyal customers.
When the restrictions are lifted, I have no doubt demand will resurface. The question is how sustainable that demand will be. Further, how much strain will the balance sheets take before business comes back in a meaningful way?
J.C. Penney (JCPNQ)
Long before the pandemic came along department stores were under pressure. Among the lower-quality stocks in the group was J.C. Penney.
Once the lockdowns came and sales plunged, J.C. Penney simply wasn’t equipped to handle the situation. It reminds me a bit of Chesapeake, in that J.C. Penney needed to execute incredibly well and have a near-perfect backdrop to operate in.
In all honesty, J.C. Penney was one recession, economic hiccup or in this case, pandemic, away from permanently running off course. Unfortunately, this storied retailer simply didn’t have the balance sheet capacity or financials to keep on chugging. It also failed to appeal to consumers on the digital front, as it was left behind in the new world of retail.
Shares of J.C. Penney still trade over the counter, but down over 86% from the 2020 highs shows just how poorly it has done. It’s also down 99.6% from its 10-year high.
For many investors, this was always a “when” not “if” situation.
Energy Select Sector SPDR Fund (XLE)
When looking at the worst investments of 2020, it doesn’t have to be all individual stocks. Sometimes when you read that headline though, you can’t help but think of the bankruptcies and stocks relegated to the pink sheets.
It has been a wild year, with every stock displaying a wide range of volatility vs. historical norms. However, no sector was hit as hard as energy.
As I touched on earlier with Chesapeake, the energy space was in turmoil earlier this year. It was already in a tough spot regarding supply and demand. OPEC was holding back production, while U.S. oil producers were ready to satisfy any extra boost in demand.
With supply high, energy prices had trouble gaining momentum. However, when demand completely disappeared — from less driving, no flying, etc. — energy prices collapsed.
As we near year end, the energy sector is still down 38% this year. The next worst-performing sector is the financials, down 7.4%. No other sector aside from energy is down double digits this year, while the loss in energy is about five times worse the next worst-performing group.
Maybe 2021 will be better.
iShares MSCI Brazil ETF (EWZ)
I filtered through several dozen country-specific ETFs and none performed worse than the iShares MSCI Brazil ETF.
A country hit hard by tourism, energy and the coronavirus, Brazilian stocks have not performed well this year. So far in 2020, shares of the EWZ fund are down 22.9%. Some other countries challenged that return, like the iShares MSCI United Kingdom ETF (NYSEARCA:EWU), down 15.5%.
However, many countries were still positive on the year, which may be a surprising observation for many investors. By comparison, the S&P 500 is up about 14% so far on the year.
The EWZ’s largest holding is Vale with a 14.5% weighting. That’s followed by Itau Unibanco and Petrobras at 6.9% and 5.7%, respectively.
In other words, two of the three largest stocks in the fund are energy-related, while the other is financial. From the prior section, readers are aware of how poorly these groups have done this year.
The fund’s subpar performance comes even with Vale, Itau Unibanco and Petrobras rallying 50.4%, 35.3% and 31.1% over the past three months, respectively. That’s how you know it’s been a tough year for the EWZ fund.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.