How Will the Dogs of 2012 Perform in 2013?
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
2012 is coming to a close. This article is going to focus on the unfortunate companies that lost close to half their value over the year; specifically, Apollo Group (NASDAQ: APOL), Advanced Micro Devices (NYSE: AMD), and Cliffs Natural Resources (NYSE: CLF).
The three companies are the true dogs of the S&P 500 this year. Apollo, at the time of writing, is down some 61%, AMD has lost over half of their market cap this year, and Cliffs is not too far off doing so. Let’s take a look at how 2013 could go for the worst of 2012.
Apollo Group is a for profit education company that has seen its market cap more than halved over the last 12 months. You’ll know many of the company’s brands, which include the University of Phoenix, Western International University, Axia College, and a few others. These brands are solid in the education space, and they will likely keep Apollo running while the company makes its way out of the rut that it's in.
Having some well recognized brands is a great plus. The company also has relatively low and manageable debt. If Apollo can weather the storm, then analysts project that the company will see gains in earnings per share through 2014.
Now for the bad--and unfortunately for Apollo all I could find was bad. To begin with, the company is in the for-profit education sector. These online schools will begin to see increased competition from traditional universities in the online space, and the traditional universities have so many advantages with taxes, accreditation, and even name recognition that it won’t be an easy fight for Apollo. Another issue for the company is that they will likely lose their S&P 500 spot if the index decides to readjust any time soon; there are plenty of companies out there with bigger market caps. Losing the S&P status would mean many mutual funds and institutions would have to sell, which would further deplete the price.
I think you should stay away from Apollo, unless you suspect that for-profit education is a good field to be in. If traditional universities weren’t enough to keep you away, consider the rise of services like Udemy, Khan Academy, and Cousera.
Advanced Micro Devices
AMD manufactures semiconductors in facilities around the world. You have likely used a PC which contained one of this companies chips at some point or another. AMD is currently the only significant rival in the PC semiconductor industry to the titan of semiconductors that is Intel (NASDAQ: INTC). Another segment of AMD is the GPU market through their subsidiary ATI. ATI is a laggard behind GPU superpower Nvidia.
Every company should have something good going for it, right? I used to think so, until I examined AMD. The company has a huge amount of debt, they are losing to Intel in the PC market, they were too slow with getting into the mobile game, and their ATI GPUs will not beat out Nvidia. The company is losing money every single quarter and they show no signs of making a profit any time soon. Revenues are also dropping; this company is just too much to handle.
In 2013 I foresee the end of AMD as we currently know it. I believe someone will go in and split up the assets for sale. Intel, Qualcomm, or ARM may wish to pick up the semiconductor portion, while Nvidia could definitely pull away a few scraps from the GPU unit if no one is interested in buying. If no one is to buy it, then the management should make an aggressive push into the mobile space. PC’s are dying out, Macs are Intel-based, and mobile devices seem to be the next frontier.
Cliffs Natural Resources
Cliffs Natural Resources makes their money by producing iron ore pellets. The company then sells the iron ore pellets to steel companies across North America. Over the past year the stock price has halved, and it may continue to drop lower unless there is a rebound in the world’s economies.
Out of the three stocks presented in this article I feel that Cliffs has the best shot of actually being a diamond in the rough. They are still turning a profit, although that profit is expected to decline, and they are even offering a pretty hefty dividend to see you through.
Looking through the fundamentals of the company you see that revenues seem to be growing at a five year rate above 25%, and the dividend growth (5yr) is also over 25%. Cliffs’ biggest problem is turning those increased sales into worthwhile profits when there is very little demand for steel products in the world right now.
This is an incredibly risky stock for a timid investor, but I’m going to go ahead and say that Cliffs will be a gainer in 2013. This company depends on a worldwide recovery, and I definitely think that we are on our way. It may not happen in 2013, but one day I think that Cliffs will be a stock worth owning, and I may be willing to take a shot at it myself.
Ash1402 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!