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Worst Stocks List: 2011’s Losers Could be Winners in the New Year

by Dee Gill December 20, 2011

It’s almost Christmas, so it must be time for the annual perp walk of worst-performing companies on Wall Street. But this year’s lists, just like those lists most years, contain at least a few companies that will make shareholders rich in 2012. Losers, history shows, can make great bargains.

Consider a few Biggest Losers of 2010. By this time last year, shares of Rite Aid (RAD), H&R Block (HRB) and Dean Foods (DF) had all made the Top 10 list of worst performing Fortune 500 companies, with losses ranging from 40% to 52%. But investors who bought the shares in January 2011 aren’t complaining.

Rite Aid Corporation Stock Chart by YCharts

YCharts took a look at companies likely to land in the 2011 Hall of Shame lists by year’s end. (There are numerous lists, varying in methodology; by sector, or market cap or simply number of entries, for example.) We found several companies that defy the broader definition of “loser.” Here’s a look at a few fundamentally strong losers – they get good scores form YCharts Pro but performed lousy for shareholders -- that appear to have respectable prospects going forward.

Alpha Natural Resources (ANR)

With shares down 62% so far this year, Alpha Natural Resources is a shoe-in for a big loser list. It’s a $4.5 billion market cap coal company hit like all the others by low coal prices, higher mining costs and fear that weak economies will mean less consumption. But the company has strong cash flow.

Alpha Natural Resources Free Cash Flow TTM Chart by YCharts

Alpha recently agreed to pay $46.5 million in restitution to the families of miners that died last year in its Upper Big Branch mine, which was owned by Massey Energy at the time. There's huge debate over whether that's a fair conclusion. But the settlement does eliminate the possibility of criminal charges against the company, alleviating the company of a major uncertainty for its future.

Make no mistake, profit margins are getting squeezed, and there’s disagreement about whether the industry’s problems are waning. But Alpha still makes money, and as long as China, India and other developing country customers continue to import lots of coal, the company will continue to have a big customer base.

Johnson Controls (JCI)

Johnson Controls, maker of car parts, had a little trouble this year getting its costs under control and correctly estimating proper inventory levels. But the company reported double-digit sales growth in each of its operating units last quarter.

Johnson Controls Revenues TTM Chart by YCharts

Building a battery plant in China is just one of several projects expected to help sales gains continue even if the U.S. car market falters. The company recently raised spending money for such initiatives with a $1.1 billion bond issue. Several investment houses initiated coverage of Johnson Controls recently with buy ratings, and that helped turn its 33% year-to-date loss in October to a less egregious 26% decline by mid-December.

Southwest Airlines (LUV)

Yes, shares of the airline routinely voted the best-run company in the business were down some 36% by mid-December, clobbered by high fuel costs and stiff competition that cut profits even while revenues grew.

Southwest Airlines EBITDA TTM Chart by YCharts

Most industry observers believe 2012 will be a better year for airlines generally, and Southwest’s $19 billion order for new jets implies the company agrees. In respect for its decades of uninterrupted profits even as competitors filed bankruptcy, Southwest remains by far the most expensive in the sector, trading at a price-earnings ratio of about 38.

Southern Copper Corp. (SCCO)

Southern Copper’s 40%-plus share price drop by mid-December really isn’t much worse than most other copper miners. It’s fallen with the price of copper this year. The differences between Southern Copper and many of its rivals, however, are consistent profits, a strong balance sheet and relatively high profit margins.

For investors, the best thing about Southern Copper these days is its 9.45% dividend yield, which is sort-of mid-range for the company’s typical payout. But some worry that that the company will have to cut back on this one.