It has been a volatile year on Wall Street. The major indexes are now firmly in the red for the year with just under two weeks left, and it has been a very bad year for a lot of stocks that are down big and remain under incredible pressure.
The year was marked with rising interest rates, a trade war with China, and fears of slowing corporate earnings growth.
President Trump’s tax reform which was supposed to spur economic growth fizzled out quickly, and the back-and-forth tariff war with China is already having an impact on input costs for American companies which in turn leads to higher prices and strain on U.S. consumers.
Some companies have weathered the storm better than others, while others have put up downright dismal numbers for the year. There are not small-cap names you have never heard of, but big-name stocks that every investor is aware of.
These stocks have all taken big hits during the year as they fell out of grace on Wall Street, and the future remains very murky as each company faces its own headwinds.
Micron Technology (MU)
Micron Technology (MU) enjoyed major gains in 2016 and 2017, but the stock fell out of grace on Wall Street and has lost 18% on the year. There are a few reasons why MU has been weak. Micron’s two primary products are flash memory and DRAM chips. Both are very cyclical, and pricing for both has peaked. Chip makers are also under pressure as a result of the trade war between the U.S. and China which poses a threat to future demand. Some traders will point to the fact that the stock is trading below 4 times future earnings, but the stock has been in this position before, and the low valuation is more a result of expectations that the company will not be able to hit its future estimates. The low valuation may prevent the stock from experience too much additional downside, but it by no means ensures that the stock will rebound in the months ahead.
International Business Machines (IBM)
International Business Machines (IBM) is the perfect case study of a company failing to adapt to a changing market. IBM staked its future on artificial intelligence and cloud computing, and neither initiative materialized into a reliable growth stream. As a result, the company was forced to look for an acquisition to spur growth and opted to purchase cloud computing leader RedHat for a whopping $34 billion. RedHat’s linux OS is open source, but target businesses that need/want help running their IT. Last quarter RedHat had revenues of $847 million. The acquisition price versus current revenue left many wondering not it IBM overpaid, but how badly did IBM overpay, for RedHat. Picking up RedHat will instantly make IBM a major player in cloud computing, something the company was unable to accomplish on its own, but how long will it take for the purchase to pay off and will RedHat remain successful once under IBM’s umbrella. IBM has proven time and again an inability to adapt, and with the stock down 21% on the year and currently trading just above its 52-week low, it remains a stock to avoid.
Social media giant Facebook (FB) was a driving factor in the FAANG stock explosion in recent years, but the last year has been hard on investors. In early 2018 the stock took a big hit on news that around 50 million user accounts had been compromised during the most recent presidential election. This led to privacy fears and concerns that advertisers would flee the popular social network. Facebook was able to put a lot of those fears to rest, but a disappointing quarterly report in July stoked previous fears and the stock has been in a nose dive ever since. It has also become apparent that Facebook has lost its “cool factor” with its youth audience which has moved to alternate social networks like Instagram and Snapchat. FB is down 20.5% on the year, and unless the company is able to post impressive numbers when it reports earnings on January 29 the stock will likely extend its losses into the first part of the new year.
General Electric (GE)
Conglomerate General Electric (GE) has struggled to find its place in the modern economy, and GE shares have fallen 58% year to date. The company has endured big drops in earnings in recent years, with profits falling by 15% per annum over the last five years. Analysts do expect to see that trend reverse with forecast earnings growth of 3% annually over the next five years, but that is nothing to be too excited about considering the next five years has favorable comparables due to the recent profit declines. GE has been steadily losing value since early 2017, and the stock is currently trading at levels not seen since the early 90’s. The stock’s losses has lowered its forward P/E to just 8.4, but given the earnings history and the company’s forecast anemic earnings growth it will be hard for bulls to come back into the market and push shares higher. GE’s most recent quarterly report in October missed on both the top and bottom line, with earnings and revenue down 51% and 11.6%, respectively. GE is a story of a company struggling to find its direction and is definitely a stock to avoid in 2019.
Overstock (OSTK) has taken a beating in 2018, with shares down a massive 78% year to date and the stock trading just above its 52-week low. Overstock was the first major online retailer to start accepting bitcoin payments which resulted in a huge run up in the stock as bitcoin mania drove up cryptocurrency prices in 2017. However, bitcoin and all the major cryptos have fallen from grace in 2018, and OSTK has taken a big hit in sympathy to the drop. Bitcoin peaked just shy of $20,000 a coin in December of 2017, but has since fallen below $3,500 and continues to look for support. After posting huge gains in 2017, OSTK has traded steadily lower this year, and unless we see a big rush back into cryptos the stock will find it very difficult to return to its 2017 highs.