High inflation and soaring interest rates have been the main factor behind the double-digit stock downturn so far this year, but alongside these macro factors, many stocks have plunged due to more company-specific issues—for example, corporate scandals.
These scandals run the gamut, both in the type of scandal and the severity of the scandal. Categories include bribery, fraud, stock manipulation, and even non-criminal charges, such as negligent and strict liability torts.
In some cases, the “scandal” has merely been the allegation of malfeasance, yet the allegation alone has been enough to tank shares. In other cases, the “scandal” occurred years back, with the respective company (and the stock) paying for it today.
However, whether guilty of the “crime” or merely struggling to put allegations behind them, the question is whether these seven corporate scandal stocks can make a recovery. Let’s dive into each one and see if a comeback is possible.
|Bed Bath & Beyond
Bed Bath & Beyond (BBBY)
Once a popular “meme stock,” Bed Bath & Beyond (NASDAQ:BBBY) has fallen to fire sale prices. Shares in the home goods retailer today have fallen to a low not hit since the onset of the pandemic.
The main reason for this big tumble for BBBY stock has been deteriorating fundamentals. Yet alongside this factor, a corporate scandal also played a role in sending Bed Bath & Beyond to the low single digits.
Following BBBY’s last big meme run in August, a shareholder filed a lawsuit against financier Ryan Cohen (then a large shareholder), along with the company’s then-CFO Gustavo Arnal, alleging that a “pump and dump” had taken place. Shortly after this suit, Arnal died tragically. This lawsuit is still pending, but as I discussed earlier this month, with bankruptcy and/or shareholder dilution risks in mind, stay away from BBBY.
Credit Suisse (CS)
Credit Suisse (NYSE:CS) has faced and continues to face many corporate scandals. The Switzerland-based global bank’s heavy loan losses and still-present concerns about the riskiness of its balance sheet may be what pushed shares around 55% lower since the start of 2022.
However, said scandals certainly haven’t helped the situation for CS stock. Around the world, Credit Suisse has faced litigation and regulatory scrutiny due to its alleged role in various frauds, money laundering, and even corporate spying. Further damaging CS’s reputation, it’s questionable whether going contrarian on this distressed financial stock.
Given that Credit Suisse is at work to restructure, you may not want to assume speculative chatter about it “going bust” will prove true. That said, even if the bank does survive, it may take time for CS stock to bolt out of penny stock territory and back toward prior price levels.
Sweden-based telecom equipment giant Ericsson (NASDAQ:ERIC) has been ensnared by a bribery scandal this year. In February, the company disclosed that it was conducting an internal investigation regarding alleged payments made to the terror group ISIS in Iraq between 2011 and 2019.
News of this resulted in an immediate sharp drop in the price of ERIC stock. Then in April, Ericsson disclosed it would likely be fined by U.S. regulators due to this scandal, although it did not provide specific numbers.
Beyond regulatory fines, the company also faces a civil lawsuit filed by the families of U.S. military and civilian victims of ISIS, related to these alleged bribes. Although this controversy may not put Ericsson out of business, this is yet another headwind for the company to contend with, as inflation and the economic slowdown start to have an impact on its operating results.
Hyzon Motors (HYZN)
In the case of electric vehicle startup Hyzon Motors (NASDAQ:HYZN), short-seller allegations turned into a bona fide investigation earlier this year. In January, the U.S. Securities and Exchange Commission (or SEC) began to look into claims made by Blue Orca Capital in its Hyzon “short report.”
That’s not all. In August, more red flags began to surround HYZN stock. As InvestorPlace’s David Moadel discussed at the time, shares tumbled around 40% when this maker of hydrogen-electric commercial vehicles not only delayed its Q2 filing but disclosed an internal investigation related to governance/compliance issues and explicitly stated that past financial statements “can no longer be relied upon.”
Shares have kept tanking, with HYZN down more than 72% for the year. As the Q2 results still need to be released, the stock may get de-listed from the Nasdaq Exchange. Further downside stemming from corporate scandals may lie ahead.
Although not the subject of bribery, fraud, or other possible criminal allegations, 3M’s (NYSE:MMM) corporate scandals may be a severe financial setback. In October, I discussed how two tort cases could continue to drag on returns.
First, there’s the litigation regarding 3M’s past manufacture of PFAS chemicals, sometimes called “forever chemicals” by critics. The company could be financially liable for its environmental impact in the U.S. and Europe. Second, 3M is also still working to minimize its liabilities related to its past sale of military earplugs, which over 230,000 military veterans allege were defective, causing issues such as hearing loss and tinnitus.
In total, these liabilities could top $33 billion. While MMM stock bulls will say this risk is “priced-in,” you may want to wait for some positive developments on these cases to emerge before buying this hard-hit blue-chip stock.
Cassava Sciences (SAVA)
Back in 2021, allegations of data manipulation knocked the wind out of biotech stock Cassava Sciences (NASDAQ:SAVA). In 2022, these allegations, related to its flagship drug candidate, Simufilam (an Alzheimer’s treatment), have continued to affect its performance.
However, as Louis Navellier has argued, while this issue continues to hang over SAVA stock, little has come out to back these allegations. However, even if it becomes undeniable that these claims are not true, that doesn’t necessarily mean it’s all uphill from here for shares.
Like many other clinical-stage biotech firms, SAVA is a high-risk, high-potential reward opportunity. If Simufilam gets regulatory approval, shares could take off once again. If Simufilam does not get approval, SAVA may not fall to zero. Shares will, however, likely experience a severe (high double-digit) drop in price. Unless you are experienced in risky biotech plays, sitting on the sidelines may be the better move.
TuSimple Holdings (TSP)
As InvestorPlace’s Eddie Pan reported in September, Ark Invest’s Cathie Wood has “backed up the truck” with TuSimple Holdings (NASDAQ:TSP) with her firm’s ARK Innovation (NYSEARCA:ARKK) exchange-traded fund (or ETF) loading up on this autonomous trucking play.
Yet while Ark may be averaging down in TSP stock, a comeback is debatable. Why? Corporate scandals have played a role in the stock’s more than 92% decline this year and could continue to hurt its performance. Already under regulatory scrutiny due to an accident with one of its autonomous trucks, TuSimple is also in the FBI and SEC’s crosshairs.
This FBI/SEC probe has resulted in some C-suite drama, with the board removing CEO Xiaodi Hou, only for Hou and co-founder Mo Chen to take back control, using their majority stake to oust TuSimple’s independent directors. This leaves TSP at risk of de-listing, which will negatively affect shares.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.