Written by Jared Levy, Editor, Smart Investing Daily
Tuesday, 04 January 2011 12:37
According to the International Business Times, the stocks below were the worst performers (in the S&P 500) in 2010.Before you scan the list, let me say most of these stocks’ deplorable performance can be explained easily if you simply look at what they do. Others may require some deeper analysis. If you review the financial statements of most of these companies, you might also see the reason for the corrections in price.
1. Weyerhaeuser (NYSE: WY)
-56.07%
2. Dean Foods (NYSE: DF)
-52.00%
3. H&R Block (NYSE: HRB)
-47.88%
4. Apollo Group (NASDAQ: APOL)
-34.47%
5. Diamond Offshore Drilling (NYSE: DO)
-33.01%
6. PulteGroup Inc. (NYSE: PHM)
-25.60%
7. Micron Technology (NYSE: MU)
-25.19%
8. Supervalu Inc. (NYSE: SVU)
-24.94%
9. AK Steel Holding (NYSE: AKS)
-24.54%
10. Western Digital (NYSE: WDC)
-23.78%
Weyerhaeuser, who supplies wood and new homebuilding products around the world, may have been in the wrong business in 2010 as the housing market continued to struggle, but there is more to that story, we will get to that in just a second.
Dean foods, the dairy giant who brings us foodstuffs with brands like Land O’ Lakes, Silk Soymilk and Horizon Organic products, among others, also suffered with higher commodity prices and production costs. When you combine higher costs with moderate consumer demand and steady consumer prices, it can be tough to grow earnings.
Is Now the Time to Buy These Stocks?
The question is if the poor performers of 2010 can put some dollars in our pocket in 2011. Not all of last year’s duds will recover this year, but out of this top 10, here are my two stock picks from this list you may want in your portfolio this year.
Micron (MU) Technical Stock
A technical stock with some interesting technical indicators. Micron has been battered this year, mainly after their May 2010 acquisition of Numonyx Holdings, but now may be a stock to consider buying at these levels.
Looking at the chart daily chart for 2010, you will see the triangle or wedge pattern consolidating into the year-end. This formation generally leads to a big move either up or down. In this case, the move was higher, and there are two specific reasons why MU could continue climbing. MU not only broke the wedge to the upside (which is bullish), but cleared its 50 and 200 day exponential moving averages. This adds strength to the bull case. Secondly, note the fresh upward cross in the stochastic, which was in the oversold area early last week. This also indicates a start of a bullish trend. Many traders use the 200-day moving average as an indicator of trend; if the stock were above it, you would maintain your long position, if it drops below, sell.
The stock breaking above that large moving average is a good sign and it’s doing so without being in an overbought condition, which leads me to believe some real sturdy support may be here for the stock around the $8.25 and $8.00 level (the 200 day EMA).
Fundamentally, the stock is extremely cheap, trading at 4 times its trailing earnings. The consensus of analysts that follow MU have rate it as a buy, although Citigroup downgraded its earnings estimates last week when the stock was at $7.75 (nice job guys).
2010 was certainly a tough year for their earnings, but I believe that they will get costs under control and continue to grow their sales in the niche market of memory in its many different forms and applications.
(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the market with our easy-to-understand articles.)
Weyerhaeuser (WY) Homebuilding Products
The number one worst selloff on the list may be a good place to “house” some of your investment dollars in 2011. What the International Business Times and Barron’s didn’t disclose in their headlines about Weyerhaeuser was the one time special dividend of stock and cash that caused the stock to drop by the amount of the dividend, so in reality WY didn’t do that bad at all.
Weyerhaeuser manages over 22 million acres (owns 6.6 million acres) of forest and has recently morphed into a REIT structure. What this means for you as a potential investor is favorable tax treatment and the potential for increased dividend payouts.
The simple way to think about this is that most companies pay taxes on what they earn, and then when they distribute dividends, you (the investor) have to pay taxes on those dividends. In a REIT format, the company distributes 90% of its earnings to the shareholders and drastically reduces the net tax implications for both them and potential investors (they do not have to pay taxes on the distributions).
A REIT is a common structure for many traditional real estate management and/or development companies. It’s a way for a large amount of investors to lump their money together and receive relatively large dividends (if the investments are profitable of course). Check out REIT.com for a list of publicly traded REITs.
WY has been stripping down its business to focus on land ownership and forestry. Their Timberlands segment is their main business, but they also provide real estate, materials, shipping and packaging services and products. Don’t forget that about 80% of its business is tied closely to the housing market, which may continue to struggle, but the dividend story is a nice fallback while we watch the slow recovery.
You must remember that this is a bottom fishing, global story in a sustainable forestry company. There are also investment crossovers into wind, geothermal, mineral rights, biomass and other “green” options with regard to their massive land ownership. Weyerhaeuser may be a place to earn a decent dividend yield (currently about 3.5%) while you wait for more profits to roll in.
Investments Bottom Line
Choosing to invest in any stock that seems cheap and has had some fundamental issues can be a great opportunity to be in on the ground floor of a turnaround. However, there is risk, you must look at not only the future prospects of the company’s business model, but its management and sector strength. You don’t want to invest in something that will continue to struggle. I feel both of these companies have upside potential in 2011.
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According to the International Business Times, the stocks below were the worst performers (in the S&P 500) in 2010.Before you scan the list, let me say most of these stocks’ deplorable performance can be explained easily if you simply look at what they do. Others may require some deeper analysis. If you review the financial statements of most of these companies, you might also see the reason for the corrections in price.
