7 Biggest Stock Disappointments Of 2011

Includes: BAC, BBRY, DNDN, F, HPQ, NFLX, S
by: Bill Maurer

2011 has been a very up and down year for the markets, and thanks to the latest dropoff, we are now down about 7.9% on the year (S&P 500). Many had hoped for a much better year, with a US recovery speeding up and the promise that Europe's problems had been put behind us. Unfortunately, things have not worked out so well. It's been a disappointing year for the markets, but there have also been some big name disappointments in individual names. Here are my top seven disappointments. As you can see from the table, all are down more than 39% on the year, and off even more from their 2011 highs.

Company Current Start Change High Change
Netflix (NASDAQ:NFLX) $63.86 $175.70 -63.65% $304.79 -79.05%
Bank of America (NYSE:BAC) $5.17 $13.30 -61.13% $15.31 -66.23%
Research in Motion (RIMM) $16.00 $58.13 -72.48% $70.54 -77.32%
Sprint (NYSE:S) $2.38 $4.23 -43.74% $6.45 -63.10%
Hewlett Packard (NYSE:HPQ) $25.39 $41.65 -39.04% $49.39 -48.59%
Dendreon (NASDAQ:DNDN) $7.85 $34.92 -77.52% $43.96 -82.14%
Ford (NYSE:F) $9.75 $16.79 -41.93% $18.97 -48.60%

Netflix (NFLX): Netflix started the year at $175.70, and many were expecting great things. The company was adding plenty of new subscribers and had just recently started growth into Canada and Latin America. Subscriber numbers were hitting new records quarterly, and the stock traded above $200 for a good part of the year, even breaking $300 in July. But as the phrase says, "nothing gold can stay." If you had told me in July that this name would be under $70 by November, I would have thought you were crazy. So would have many others. Netflix's fall started when it announced its price increase in July. The company was getting rid of its $9.99 streaming plus DVD plan, and was going into two separate $7.99 plans. While I think they expected some backlash, I don't think they saw this train coming. Things got worse a month later when they announced that negotiations with Starz were not going well and that their current deal (expiring in February) would most likely end then. Just a week later, they came out with the dreaded news. Subscribers were fleeing, and fast. They took their subscriber guidance down, and the stock tanked. A decision to spin off their DVD business that was later axed was even more proof that management was lost. This was the last time the stock saw $200, and $150, as well.

It continued into the low $100s for a bit until its quarterly report came out in October, and was even worse. They missed on their downwardly revised guidance, lowered next quarter's number, announced that they would begin losing money in 2012, all buybacks were halted, and there would be no international expansion plans beyond the UK and Ireland, scheduled for early 2012. The stock dropped from $119 to $77. That was the last time we saw $100. Despite a decent rally back to the mid $90s, we've fallen since then. A recent announcement of a convertible debt offering to raise $400 million knocked the stock down again. They are raising money in the low to mid $80s, but a few months ago, were buying back stock at well over $200. If that's not a disappointment, I don't know what is.

Bank of America (BAC): Can everyone agree that the financials were the most disappointing sector of this year? Just when we thought that the problems in Europe had been temporarily solved, they got even worse, and there doesn't appear to be a definite end in sight. Bank of America has struggled even more with its mortgage mess that keeps popping up and doesn't want to go away. Despite another management shakeup and a desperately needed investment from Warren Buffett, shares are down over 61% this year. Bank of America's balance sheet has improved, but not enough to keep shares from trading just above the $5 level. Over the first nine months of the year, their liabilities to assets ratio has declined from 89.92% to 89.62%. That is down from the end of 2008, where it stood at 90.26%, but is the exact same level we saw at the end of 2009. So two years have passed, and not much has changed, except for the stock price, which has lost two-thirds of its value in the past two years. Analysts still see this as a slight buy to hold, and at $5, it could be a good long term value play, but we could see more pain in the short term. Although analysts now see a potential positive net income for the year (expectations were for a loss up until a few days ago), two cents of earnings is nothing to be proud of. This name has continued to disappoint, and I'm not sure how many still have faith in the name.

Research in Motion (RIMM): The maker of the Blackberry is struggling in this ever-competitive environment. Blackberrys are just not in high demand anymore, as evidenced by the expected slight decline in revenues for this fiscal year (ending in Feb. 2012). Year over year sales are down, and margins have dropped, so earnings have been getting much worse. A 30% drop in EPS is expected for this quarter, and a 26% drop is expected for the fiscal year, with continued declines the following year. The margin by which they've beat each quarter has come down as well, as witnessed by the following table from Yahoo!'s earnings page.

Earnings History Nov 10 Feb 11 May 11 Aug 11
EPS Est. $1.65 $1.76 $1.32 $0.88
EPS Act. $1.74 $1.78 $1.33 $0.80
Difference $0.09 $0.02 $0.01 ($0.08)
Surprise 5.50% 1.10% 0.80% -9.10%

Right now, the only reason to be in RIMM is to hope for a buyout, which is not likely, given their size. Analysts have gotten increasingly negative over the stock recently. Just three months ago, 12 analysts had buy recommendations while 14 had underperform or sell ratings. Now that ratio is 8 to 17. There is just too much competition right now for RIMM, and if they continue to experience more network outages, the fall will only speed up. Without a buyout, this name could easily be back on this disappointment list next year.

Sprint (S): Sprint's stock has been more of a disappointment than we've seen at the company, but I must include it on this list. The stock is down over 40% on the year, and down 60% from this year's high. Sprint was dealt a blow earlier in the year when AT&T (NYSE:T) announced plans to buy T-Mobile. Throughout the year, Sprint has also seen troubles at its partner Clearwire (CLWR), which I've detailed in multiple articles. Sprint has recently acquired rights to start selling Apple's (NASDAQ:AAPL) iPhone, but the full realization of those monies won't be for another year or two. Sprint has also had to increase its already weighty debt load, which has led to higher interest rates and costs. Sprint would be an even bigger disappointment if they hadn't gotten the iPhone, but they still are not in the greatest of shape. Their earnings have beaten analyst expectations the past few quarters, but only after estimates were revised down several times during each quarter. Just a few months ago, a $2.5 billion loss was expected for this year and a $2 billion loss for next year. Now that Sprint has increased its debt load and stated it needs to spend more to upgrade its network and infrastructure, those estimates currently stand at $2.6 billion and $3.35 billion, respectively. I think Sprint could turn things around eventually, but the company is just facing too many headwinds currently. I see this stock going below $2 before we see any marked improvement.

Hewlett Packard (HPQ): HP has done the best of these seven names, but I wouldn't be cheering about a 39% loss. Not many companies find themselves replacing a CEO after such a short time period, but HP was forced to do just that. With revenues dropping 3-4% over prior year periods, the company's business just isn't clicking right now. A good company can overcome declines in sales, but you need a clear strategy, and that is something HP has not had recently. Sales for HP are not expected to rebound until their next fiscal year, which ends in October of 2013. HP has a new CEO now, so let's give the company some time to get back on its feet. Hopefully they'll stay on track with their PC business decision. They don't want a repeat of Netflix's situation. The company does offer a close to 2% yield right now, but most analysts have it as a neutral/hold right now. I think that's quite fair for at least the next quarter or two.

Dendreon (DNDN): Shares of the biotech company went into 2011 looking for a great year, and it just wasn't meant to be. Their blockbuster prostate cancer drug, Provenge, has been too expensive, and there have been serious concerns about insurance reimbursements. That has led to sales being lower than expected, a lot lower, and that means Dendreon's losses will continue. Just recently, Medivation (NASDAQ:MDVN) saw positive progress on their prostate cancer treatment, and any competition to Provenge could be deadly to Dendreon. Dendreon shares started off 2011 around $35 and traded up to nearly $44, but as the company has disappointed over the past few months, the stock has plunged. It lost nearly two thirds during an earnings report, and fell further on the above mentioned Medivation news. Dendreon has been known for its huge percentage moves (both positive and negative) over the years, and it is possible that the company has another run in it. But there is too much risk their for most investors.

Ford (F): Shares of the automaker have been under heavy pressure this year as the global recovery just has not fired on all cylinders. Despite estimated 15% revenue growth this year, earnings per share are expected to be down 4 cents to $1.87 on the year. In 2012, revenues are expected to rise another 4%, but EPS will continue to decline, down to an estimated $1.62. Ford's shares are down over 40% on the year. Despite the rise in sales, costs are just too high right now, which is why I'm not in favor of the stock just yet. Analysts have a much rosier view of the name, with mostly buy ratings and price targets ranging from $14 to $24. Being that we are currently under $10, that is some nice upside if the company can deliver. I just think there is too much competition right now, so until Ford can get their costs down a bit, I won't be a buyer.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.