Are These Companies Really the Worst in America?
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Every year, the folks over at The Consumerist hold a bracket-style contest for who will be deemed the “Worst Company in America.” Consisting of a 32-team, "winner"-take-all format, companies square off against each other for the coveted “Golden Poo” award.
This year, Electronic Arts (NASDAQ: EA) had the unfortunate displeasure of winning the contest, and it’s estimated that over 250,000 people voted in the final round matchup between EA and Bank of America (NYSE: BAC). Despite taking the brunt of the Occupy Wall Street movement, BAC was overtaken by EA, as fans cited the videogame developer’s history of unoriginal products. It is likely that hatred of EA has been fueled by the after-effects of the Mass Effect 3 debacle, which can be read about here.
Curiously, EA’s stock took a hit when they won The Consumerist’s award in early April. While it is obvious that these results are not the only thing affecting stock prices, it is still interesting to note how past winners have fared after winning the “Golden Poo.”
2012 Winner – Electronic Arts. As mentioned above, EA has been in the news recently for all the wrong reasons. The company has not only irked gamers for its handling of the ME3 ending, but its also been criticized for: (1) using charities to advertise games to children without consent, (2) auto-scanning computers to determine if games were purchased illegally, (3) allowing online passes to expire without gamers’ knowledge, (4) closing servers for games recently released in the last two years, (5) placing "pay-to-play" content on game discs, (6) and for causing the total destruction of the universe.
Okay, that last one was exaggerated, but you get the point. The company’s core user base – the one that it relies on to purchase its ongoing stream of new games and sequels – is fed up. After the company received its award on April 4, the stock dropped 2.33 percent in one day. Since then, the stock has hemorrhaged almost 13 percent total. With stagnant revenues over the past year, EA recently surprised with better than expected earnings. Additionally, a PEG ratio of 0.6 signals that EA may rise in the long run, so its not all doom and gloom.
2011 Winner – British Petroleum (NYSE: BP). Synonymous with the 2010 oil spill that devastated the Gulf Coast, it is understandable that BP won the “Golden Poo” award in 2011. In that year, the company was matched up with Bank of America and defeated the financial giant. Perhaps what is less known is that a smaller, albeit equally dangerous, oil spill occurred in Alaska in 2006. As such, BP has become the mortal enemy of environmentalists everywhere. Concerning the more recent spill, it is estimated that 5 million barrels of oil gushed from the company’s busted well, costing the company over $32 billion thus far. In fact, BP expects that it will continue to pay settlements and cleanup fees for the next few years, as recent profits are still being hurt by the 2010 spill.
In the first three months of the crisis, shares of BP slid down 50 percent, from almost $60 a share to $27. In the time since, shares have recovered slightly to hover around the $40 range, though they remain tepid due to future uncertanties. Interestingly, in June 2011 – the month following the announcement that BP was the most-hated company – its stock dropped almost 2 percent. Based on below-average P/E, P/B, and P/S ratios, shares of BP are currently trading at a 35 percent discount. Using a moderate year-ahead EPS forecast of $6.75 in conjunction with the industry average P/E, we can set a target price of $51.98 by the summer of 2013.
2010 Winner – Comcast (NASDAQ: CMCSA). Comcast is one of the largest cable and Internet providers in the United States, annually raking in over $50 billion in revenues. The company won the “Golden Poo” award in 2010 as angry consumers cited its: (1) inability to provide efficient phone-based technical support, (2) poor maintenance service, (3) enormous price hikes after a contract’s teaser period, (4) blatant promotion of company-owned stations, (5) slow internet access, and (6) its recent hiring of the FCC commissioner that approved its merger with NBC Universal soon after the merger was approved. Right after the company won the award no company wants to win, its stock dropped over 7 percent, with it falling an additional 25 percent to around $16 a share by the summer of 2010. Since then, the stock has recovered to its present-day price of just under $29 a share.
It should be noted, however, that investors are weary over the company’s prospects with the advent of cheaper alternatives to TV available online, seen by the fact that subscription growth has stalled in recent months. Currently, it looks that shares of CMCSA are fairly valued, with P/E and P/CF ratios in line with industry averages.
2009 Winner – American International Group (NYSE: AIG). One of the biggest recipients of the 2008 bailout package, it is estimated that taxpayers loaned this insurance giant over $180 billion. As regulators and economists alike argue that such a massive package was necessary to prevent financial contagion from spreading, Americans couldn’t help but feel ticked when they saw the company pay over $150 million in bonuses the following year. In fact, it is these two actions – receiving a taxpayer bailout and paying out bonuses soon thereafter – that have made AIG become the poster child for protestors bent on extinguishing "corporate greed."
Since the company became nearly illiquid in 2008, shares of AIG have fallen from nearly $1,500 a share to a current price just under $30, so the announcement of the “Golden Poo” award couldn’t really hurt this stock any more. Investors looking to go long on AIG can take solace in its declining government ownership. In the future, this insurance giant will be a smaller yet safer company, as its credit default swap operations are a thing of the past.
2008 Winner – Countrywide Home Loans. Now a part of Bank of America, Countrywide was the largest home mortgage grantor in the country before the housing market collapse of 2006-2007. Soon after housing prices began to decline and increased foreclosure activity began to force homeowners out of their properties, dozens of lawsuits were filed against Countrywide for its misrepresentation of subprime mortgages. Keep in mind that this company was securitizing these assets; in other words, they were selling them to investment banks, pension funds, and other outside investors. The company’s key transgression was that they knowingly rated subprime mortgages – the riskiest of all loans – as low-risk investments. When subprime borrowers began to default on their mortgage payments, outside investors who thought they had a safe portfolio experienced heavy losses.
It’s particularly interesting that “Golden Poo” awards pointed out two of the biggest culprits for the housing market crash and the subsequent Great Recession. As the economy improved in 2010, voters’ focus turned to more service-oriented companies. It remains to be seen what is in store for 2013.
Fool blogger Jake Mann does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Bank of America. 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. If you have questions about this post or the Fool’s blog network, click here for information.