10 Comeback Companies for 2012
Nothing warms an investor's heart like a good overcoming-the-odds tale -- or at least the possibility of one.
Who doesn't love a comeback story? From Mickey Rourke's career-resurrecting performance in The Wrestler to Reggie Miller and the Indiana Pacers' epic eleventh-hour victory over the New York Knicks in the 1995 NBA playoffs, nothing warms our hearts and inspires our psyches like a good overcoming-the-odds chestnut.
So, in the spirit of hope for a brighter 2012, Minyanville has taken a look at 10 companies that are singing a certain Gloria Gaynor tune and trying to turn the tragedies of the past year into triumph.
1. Green Mountain Coffee Roasters
When Greenlight Capital hedge fund manager David Einhorn sells short, investors follow suit. Take the case of Green Mountain Coffee Roasters (GMCR). The stock had been among the year's best performers, but Einhorn's big bet against it, based on its accounting and business practices, took all the caffeine out of the K-Cup maker. The stock had been selling at $111 per share in September, but dropped to $44 within a month, following Einhorn's widely publicized criticism. Although the company reported 91% fourth-quarter revenue growth, the share price continues to hover around $45.
So what could change in 2012? Loyal investors are hoping that strategic partnerships with Caribou Coffee (CBOU), Folgers, Starbucks (SBUX), and Dunkin' Brands Group (DNKN), combined with a possible resurgence in popularity of its Keurig machines, will help percolate Green Mountain's stock price.
2011 was, without a doubt, a tumultuous year for Netflix (NFLX) with its subscription fee hike, Qwikster blunder, and ill-timed services outages. At the end of November, the company announced it would sell $400 million in stock and convertible bonds in a bid to raise cash. And while its share price had dropped to $70 at that point (down from a high of $304 in July), the company was spending an average of $222 per share to buy back its own stock.
Although many have written off the online rental house, predicting an even worse 2012, "the bulls say that, without much true competition out there, Netflix still is a powerhouse." For better or worse, Netflix still has the name cache for online video streaming, and as soon as consumers begin gradually gravitating away from physical media, Netflix will reap the rewards for what it does best.
The world's largest computer manufacturer may be down, but don't count it out. After taking a series of beatings to its bottom line under Leo Apotheker -- specifically, losing 45% of its share price during his abbreviated tenure and suffering from the high-profile flop of the TouchPad Tablet -- former eBay (EBAY) CEO and California gubernatorial contender Meg Whitman has taken the helm. Two of Whitman's first orders of business that could juice Hewlett-Packard's (HPQ) floundering share price: Saving the firm's in-house PC division and releasing its WebOS operating system to an open-source project.
4. Bank of America
Considered by much of the country as one of the Wall Street banks most deserving of a place in Dante's fourth circle of hell, Bank of America (BAC) isn't going to get a whole lot of sympathy from the noninvesting public regarding its recent poor performance. With its stock price hovering around $5 due to its exposure to mortgage risk, Bank of America claimed the dubious honor last Monday of having the biggest fall in the Dow Jones Industrial Average (^DJI).
One of the lone dissenters in a sea of BOA doomsdayers, Credit Suisse large-cap bank analyst Moshe Orenbuch lists the company as one of next year's top bank stocks. "While near-term revenue headwinds continue, [Bank of America] has significant opportunities to accelerate revenue growth in 2012 by re-pricing," says Orenbuch. "In addition, we see opportunities to improve capital and book value through optimizing the balance sheet. Streamlining of businesses could lead to further strategic dispositions and asset run-off."
5. Research In Motion
The foreboding headlines are old hat by now: "Research In Motion Stock Hits New 52-Week Low"; "RIM Continues Its Domination of the Caribbean!"; "Apple's App Store Now Worth More Than All of RIM." But hey, it's not like things could get worse, right? (Don't answer that.) Crushed by the competition coming from Android (GOOG) and Apple's iOS (AAPL) devices, the BlackBerry makers have struggled to keep up -- much less stay ahead -- with their smartphone brethren.
The second half of 2012 could be another story, however. That's when RIM's belated BlackBerry 10 is slated to hit the market, and maybe then, on a wing and a prayer, those poor unlucky Canucks could finally take advantage of their $1.5 billion in cash and use it to find something that might outshine Apple and Google.
6. Jefferies Group Inc.
Comeback kid status may have already arrived for midsized investment bank Jefferies Group Inc. (JEF).
In November, the company was on the receiving end of criticism from Egan-Jones Ratings Co. for its sovereign debt holdings in Europe -- after claiming it had no meaningful exposure to the Eurozone's troubled debt. As a result, the financial firm saw its stock price fall by as much as 46%, and the company was forced to sell off $1.1 billion worth of long and short positions in Europe.
One month later, after beating analysts' fourth-quarter profit beat estimates and watching Egan-Jones reverse its statement that the company needed to raise $1 billion in capital, Jefferies Group has seen shares rise from $2.70 to $14.50 -- the biggest increase in three years.
The social gamer had barely made it out of the gate before the investment community started giving it a collective thumbs-down. Zynga (ZNGA) fell 5% short of its $1 billion target (attributable in part to denying that crucial 15% buyer discount) and swiftly went from hot-to-not tech IPO. It was a huge letdown considering, unlike other high-profile Internet IPOs like Groupon (GRPN) and Pandora (P), Zynga was actually profitable.
But gloom and doom isn't necessarily all that's on the horizon for the online games developer. Its tepid public debut is the result of a complex series of factors that face all risky and similarly overvalued Web IPOs. What separates Zynga from the rest, however, is that "it's doing a better job than any other casual-gaming company of churning out hit after hit," says Fortune magazine.
The end of April was a sunnier time for Swiss global financial services company UBS (UBS), when its stock was trading at its yearly high of $20. In the months since, UBS has suffered a perfect storm of the European debt crisis, new Swiss tax agreements and, most publicly, fraud and false accounting charges. As of this writing, UBS' stock has slid to $11.81, losing over 40% of its value.
That being said, an increased focus on its wealth management business, which accounts for 58.7% of its stock price and added 30.7 billion francs ($32.7 billion) of net new funds in the first nine months of the year, is expected to drive UBS' stock up. Additionally, earlier Swiss regulations aimed at curbing capital and liquidity may stand to benefit UBS.
"In a market like this one, investors are looking for solidity and safety," said UBS CEO Sergio Ermotti. "To have a buffer of capital above our peers is something we think is a competitive advantage. But at the end of the day, what is also a competitive advantage is the solidity of Switzerland as a country."
9. The Gap
Like the rest of its clothing retail sector kin, The Gap (GPS) has become a casualty of a less than robust pattern of consumer spending. The global chain, which operates, in addition to its own brand, Old Navy, Banana Republic, Piperlime, and Athleta stores, experienced a nearly 20% drop in share price this year and has been forced to close the doors of many of its US locations.
But when a retailer closes a door in America, it opens another in China. In addition to its burgeoning online business, The Gap expects to see the share of revenue from overseas markets, with China the cornerstone of its expansion, rise by one-half in just two years.
10. Best Buy
Demand for TVs and other big-ticket consumer gadgets may have tumbled right alongside its third-quarter net income -- which fell a staggering 29% -- but the good news for the electronic retailer is that people love their smartphones. By ramping up its mobile offerings, and with Android continuing to release a new flagship device every month, Best Buy could rebound yet. In order to stay competitive with big box discounters and online retailers, Best Buy has also begun cutting prices and offering free shipping. (As consumers discovered this week, however, the company has yet to work out its ordering logistics -- Best Buy had to cancel some customer holiday orders when it ran out the season's hottest items.)
This summer, Best Buy made headlines for its inventive approach to downsizing, not necessarily staff, but its physical space. Taking a sort of empty nester tack, Best Buy began making better use of its oversized brick-and-mortar stores by renting out square footage to smaller noncompetitors like groceries, beauty supply stores, and housewares retailers.
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