It’s safe to say 2020 was a bad year for value investors. Growth investors saw massive gains in big tech and electric vehicle stocks. But for those taking more of a “Graham-and-Dodd” approach? Returns were not so great. Some of the worst investments of 2020 weren’t over-priced “story stocks,” but seemingly “cheap” value stocks.
Granted, with the novel coronavirus wreaking havoc on markets, value investing since March has been more about getting back to even as much as getting back to normal. Many value stocks saw dramatic rebounds in the months following the March Covid crash.
But, others so far have failed to bounce back. Not only that, in some cases, their share prices have continued to trend lower. True, 2021 may bring a rebound for many of these hard-hit and under-performing stocks. But, given each one is as much a value trap as it is deep value, the jury’s still out.
So, which value stocks have been some of the worst investments of 2020? These eight (to some extent) fit the bill:
- Intel (NASDAQ:INTC)
- Kroger (NYSE:KR)
- Occidental Petroleum (NYSE:OXY)
- AT&T (NYSE:T)
- Molson Coors (NYSE:TAP)
- Vornado Realty Trust (NYSE:VNO)
- Walgreens Boot Alliance (NASDAQ:WBA)
- ExxonMobil (NYSE:XOM)
Worst Investments of 2020: Intel (INTC)
Intel stock may have popped on news of Dan Loeb’s Third Point hedge fund taking an activist position in the floundering chip maker. But, with the company losing significant ground to high-flying rivals AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), trying to “buy the dip” in INTC stock has been quite like trying to catch a falling knife.
Trading at a single-digit forward price-to-earnings, or P/E ratio (9.6x), the stock (on paper) looks dirt cheap to AMD and Nvidia, which both sport P/Es well above 50x. But, given its market share losses and tepid growth prospects, it makes sense why investors have give Intel stock a highly discounted valuation.
And now, with Microsoft (NASDAQ:MSFT) moving chip design in-house, the venerable chip-maker now has another headwind on its plate. This news, coupled with Loeb’s activist campaign, highlights how Intel is fast becoming more like a tech has-been like Xerox (NYSE:XRX), rather than a resilient tech dinosaur like IBM (NYSE:IBM).
Those buying today may see a decent return in 2021. Especially if Third Point’s Loeb makes headway rattling the company’s cages. But, with its long-term prospects unclear, it may be best to avoid this tech value trap next year as well.
Back in March, when markets overall were crumbling, KR stock was “crushing it.” As Americans rushed to grocery stores to stock-up for lockdowns, Kroger cashed in.
At the time, I recommended it as one of many “stockpiling” plays to buy as Covid-19 disrupted the U.S. economy. Yet, those who bought the news got in too late. Kroger stock saw additional gains through the middle of 2020. Since then, shares have fallen back below their “great American stockpile” price levels.
Given its low valuation (forward P/E of 9.5x), and recession-resistant business, many value investors may be tempted by this stock in 2021. I still see it as a great opportunity, including it in a recent list of reliable value stocks to buy in 2021. But, given that the valuation hasn’t been enough to entice investors, I concede the path to gains in the new year is not certain.
While it seems unfair to call this one of the “worst investments of 2020,” as shares generated a positive return in 2020. But, compared to the triple-digit moves of many “story stocks,” performance was disappointing. However, while you shouldn’t expect to get rich from this consumer defensive stock, the coming year could bring much better return for KR stock.
Occidental Petroleum (OXY)
Occidental Petroleum’s problems started long before the novel coronavirus. Its ill-timed merger with Anadarko Petroleum, the venerable oil exploration and production (E&P) company set the fire in motion. The pandemic — and its impact on oil prices — was the accelerant.
Yes, thanks to the continued recovery in crude oil prices, OXY stock has made a solid recovery. Trading for as low as $8.88 per share in March, the shares today change hands at around $17.30 per share. But, with the price far below pre-pandemic price levels (around $40 per share), those who got in before the crisis are still sitting on big losses.
Nevertheless, the recent bounce-back may be the start. Those who lost big on one of the worst investments of 2020 have a shot of narrowing their losses in 2021. Analysts over at Bank of America recently gave shares a “buy” rating, and a $29 per share price target. Why? As oil continues to climb, the company’s balance sheet risk isn’t as dire as previously thought.
With a potential bankruptcy less of a risk, the coming year may wind up a banner one for OXY stock. Volatility could continue, but this bad value play of 2020 could be a great buy on a pullback in 2021.
Most blue-chip stocks today trade above their coronavirus lows. But not Ma Bell. Soon after the crash, AT&T partially recovered. But, since the summer, T stock has trended lower, and today doesn’t trade far above its 52-week lows ($28.50 per share vs. $25.39 per share).
With its high dividend yield (7.3%), and low P/E (9x), many value investors see opportunity with this venerable telecom company. But, there’s good reason why investors overall have continued to shun this stock. With its high debt load, a result of its late 2010s merger spree, the company may have bit off more than it can chew. So far, the company has generated enough cash flow to service debt, and maintain its fat payout rate.
But, potential issues with its WarnerMedia unit, among other concerns, could mean a dividend cut is eventually necessary. One could argue that at today’s low valuation, Wall Street’s already pricing-in a cut. However, with many in this stock for the yield alone (7.23%), any sort of negative chance could fuel an investor exodus.
So, what’s the play with T stock in 2021? It still looks like a value trap. Be careful buying in the coming year what was one of the worst value plays of this year.
Molson Coors (TAP)
Much like its rival, Anheuser-Busch (NYSE:BUD), beer giant Molson Coors’ issues didn’t start with the pandemic. Shares in the beer giant have fallen more than 50% in the past five years. Namely, due to the secular decline in beer popularity, especially among younger generational cohorts.
With its forward P/E of around 11x, value investors may see opportunity with the out-of-favor consumer staple stock. But, while TAP stock has bounced back on vaccine news, it’s debatable whether a vaccine-fueled recovery in 2021 will do anything to move the needle further.
Analyst projections calling for essentially zero earnings growth in the coming year, which makes sense given the long-term decline in North American beer sales. Even during the pandemic, when “stay at home” became “drink at home” for some, retail sales growth in beer has trailed that of spirits and wine.
However, it’s not as if Molson Coors is throwing in the towel as beer declines in popularity. Since a restructuring in 2019, the company has shifted focus toward higher-growth segments of the adult beverage industry.
As this Seeking Alpha contributor noted, the company’s shift into the hard seltzer and cannabis-infused beverage spaces help the company get out of its rut. Yet, even with the turnaround potential, poor performing value play TAP stock could continue to underperform in 2021.
Vornado Realty Trust (VNO)
After Covid-19 hit the United States, New York office REIT (real estate investment trust) Vornado Realty Trust cratered from around $65-$70 per share, down to prices below $30 per share. And, as remote work remains the norm for many in corporate America, shares have failed to mount a meaningful recovery.
VNO stock today trades for around $37 per share. Some may have “bought the dip,” hoping to gain exposure to Manhattan real estate on the cheap. But, unlike prior real estate market downturns, this one may have more of a permanent impact on the health of the New York City office property market.
Sure, the idea of a “permanent remote work” environment may be more of a pipe dream than a megatrend. So much of New York’s top industries (like financial services) depend on person-to-person interaction. But, given the exodus of people (and businesses) from New York City following the outbreak, the office building sector in America’s top “gateway” real estate market could remain challenged for many years. Even if vaccine outlook calls for a mass return to the office by next summer.
In hindsight, the uncertainty weighing down on Vornado shares may look like a prime buying opportunity. But, for now, bottom-fishing in this Manhattan real estate play hasn’t been a winner for investors.
Walgreens Boots Alliance (WBA)
As InvestorPlace’s Tom Taulli wrote Dec. 22, WBA stock was this year’s worst performer in the Dow Jones Industrial Average (NYSEARCA:DIA). Wall Street is by-and-large bearish on bricks-and-mortar pharmacies. Not only due to Covid-19, which has limited Walgreens Boots Alliance’s in-store sales. The specter of Amazon (NASDAQ:AMZN) “disrupting” the traditional pharmacy business has been a big concern as well.
For contrarian investors, this bearishness may seem like opportunity. Shares trade for a single-digit P/E ratio (8.2x), and sport a sweet 4.74% forward dividend yield. But, with the aforementioned challenges, it may be tough for this value trap of 2020 to bounce back with a vengeance in 2021.
The sell-side community isn’t holding its breath. Some 86% of analysts give it the equivalent to a “hold” rating, 14% give it a more bearish rating, and 0% rate it as a “buy.” Yet, one could make the argument the company has been oversold due to aforementioned headwinds.
Given its exposure to the much-harder hit U.K via its Boots subsidiary, the company’s fortunes could see a massive improvement if vaccines solve the crisis both here and across the pond.
Bottom line: Of the “worst investments of 2020” discussed here, this may be one of the more appealing value opportunities.
What else is there to say about ExxonMobil? The venerable blue chip oil company, humbled by the massive decline in oil prices, is in a tough spot. Yes, the recent bounce-back in crude oil bodes well for the company’s 2021 performance.
But, still operating in the red, and borrowing to pay its 8.43% dividend, oil may not rebound fast enough to solve Exxon Mobil’s problems. Something’s got to give, especially in the long-term. With President-elect Biden’s victory in November, the tide is continuing to turn against big oil.
As our own Matt McCall discussed back in November, the demographic and economic changes shifting us to a “green economy” aren’t going anywhere. Especially as “green” politics moves out of the fringe, and into the mainstream.
Now, its declining reputation as a venerable blue chip doesn’t necessarily mean it can generate great returns going forward. But, with 2021 success hinging on additional oil price gains, there’s not as much reason to dive into XOM stock, considering there are many ways to play an oil price recovery.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.