During the last year we've experienced one of the most volatile markets in our history. The volatility has been the result of questions surrounding both Europe's future and the impact that a potential European collapse could have on the U.S. markets. There have been some stocks, with solid fundamentals, to overcome the volatility and trend higher. However, this year's proven to be devastating for other stocks, which have been unable to overcome the volatility, and have lost a large portion of value. Today we will be looking forward to 2012 and try to determine whether or not any of 2011's biggest losers will recover to post gains.
First Solar (FSLR) has been one of the worst performing stocks of the last year with a 75% loss, and the majority of its loss during the last 6 months. The solar industry's been crushed over the last year, and FSLR has been one of the driving forces behind its loss. The company's faced several issues during the last few years including: a declining market in Europe and a sharp drop in material prices. The company's had to re-shift its focus after abandoning its copper-indium-gallium-selenide technology; and has lowered its guidance; and laid off a large number of employees. The future of this company lies with the future of Europe, which is one of the largest solar markets, and its growth in China. The company remains highly profitable with solid margins along with having a strong balance sheet with a substantial amount of cash and low debt. However, I'm not buying, and I believe the company could face another rough year in a struggling solar market before it could trend higher. The reason is that I don't believe Europe will improve and I expect the company's market share to decrease in 2012 and ultimately push the stock lower.
In 2007 Research in Motion (RIMM) was one of the fastest growing companies in the market, with its transcendent BlackBerry products. Yet during the last year its stock declined 80% and now trades at just 3x earnings. The company's decline has been a result of a loss in market share to the iPhone and Android operating system, which has its stock creating new 52-week lows on a daily basis. Investors and analysts have attempted to call the bottom of RIMM's trend for the last year but have been unsuccessful, and I don't feel comfortable in predicting that its bottom has been reached, therefore I'm selling the stock. I simply don't believe it can remain competitive in the smartphone market. The company's strategic plan, up until this point, has been to release new BlackBerry phones without substantial changes to the operating system or the design of its devices. I believe that until the company makes drastic changes to its products, and creates a new brand, it will continue to lose market share and trend lower. The company's proven itself to be innovating and transcendent, therefore it has a chance to regain market share and be competitive in this market. But not until the company's executives decide to make changes and accept a couple horrific quarters to create a device that is once again a "must have device" in a competitive smartphone industry, which I don't expect to occur in the immediate future.
Netflix (NFLX) has posted a large loss, which has all occurred during the last six months after CEO Reed Hastings increased the price of the company's services. In fact the company had gained 60% year to date until July 13, when the stock began to trade lower. The stock lost 72% of its value over the last 6 months but still trades at 15x earnings. The problem with predicting the future trend of this stock is that it was a momentum stock before it reversed and if Hastings hadn't raised prices then it may still be trading near $300. The company will face tough competition over the next few years but it's still growing at a very rapid rate. In fact the company increased revenue by nearly 50% and income by 65% year over year during its most recent quarter. I am actually buying this stock around $65 for gains in 2012. It continues to grow at a very fast rate and I believe it's an attractive acquisition target because of its growth and market share. I wouldn't be surprised if a large cable company or maybe a company such as Facebook, which may want to enter the streaming video industry, were to purchase Netflix during the next year. The stock's priced fairly considering its growth and there are a large number of companies that could benefit from Netflix's services, therefore I'm buying for gains in 2012.
Bank of America (BAC) lost 60% of its value over the last year and is now trading at just 25% of its book value per share. The stock's been beaten down over the last year with increased concerns in Europe; new regulations to lower revenue; numerous lawsuits; and a real estate crisis. Some believe that at $5 a share the stock is priced for value and that it must rise at some point in the future. However, I think the opposite and I believe the crisis in Europe and BofA's loss is just getting warmed up, and that it still has significant downside potential. Last week I wrote an article in which I discussed the price performance of several large financial institutions compared with the value of the Dow Jones. And what I explained was that these stocks fall hard with the market but are slow to rise because of increased skepticism surrounding the industry. In fact, since September 30, the stock lost 21% of its value despite the Dow trading with a near 1,000 point gain. This fact shows the reluctance of investors to invest in this stock, regardless of the market's performance, yet their quickness to sell at any signs of trouble. Therefore the question becomes if you think the market will stabilize and volatility will subside. I don't believe it will, and although I expect the market to gain in 2012, I do expect volatility and I wouldn't be surprised if we look back one year from now and see that BAC has declined by at least 30%.
I expect Citigroup (C) to trade very similar to BofA in 2012 regardless of its fundamental performance. What I find to be interesting with C is that the company's posted fairly strong earnings during the last year but continues to trade lower. There are many factors that are driving the company's stock lower, which include its presence in emerging markets and, much like BofA, its exposure to the eurozone. I am not sure how the company will respond to new regulations but I do know that it will take time for these companies to regain the confidence of investors; and I expect Citigroup to continue trading lower in 2012, unless volatility ends, which I don't expect to occur.
General Motors (GM) trades very similar to the financial stocks and has posted a one-year loss of nearly 45%. However, unlike the banking stocks I expect GM to recover and potentially double in 2012. The company posted incredible sale numbers during 2011, its best rate since cash-for-clunkers, and has given no indication that sales will subside. I believe the downtrend in GM is a result of the company's performance during the recession; and because the word "recession" has been mentioned so often during the last 6 months. In my opinion, the potential for a European recession has created fear among investors; and because of GM's past performance the stock has traded lower. The only difference is that GM is actually selling vehicles and is growing with a new-found emphasis on fuel efficiency. If GM can continue to sell its fuel efficient vehicles then it should begin to trend higher in the immediate future. It is just taking time to convince investors that GM is growing and that the company isn't in financial danger, regardless of economic conditions.
I've always been more bullish on GM than Ford (F) and believed that GM would be the growth stock within the auto industry. And although I expect GM to post large gains I now believe that Ford will be the catalyst behind the gains in the auto industry. Ford is showing similar growth as GM, however I believe the difference will be its dividend. And because the stock lost 40% of its value during the last year and is now trading at just 6x earnings I believe there is a substantial amount of room for large growth during the next year. The company continues to make progress on its balance sheet by lowering its debt-to-assets ratio and I expect Ford to begin trading higher in the near future and that it's now trading at the bottom of its range.
Disclosure: I am long GM.