The five worst performing stocks in the S&P 500 in August were spread across many different sectors from energy to food to technology, and most were guilty of committing the cardinal sin of missing expectations.
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Dean Foods (NYSE:DF) fell 14.4% in August. The company reported earnings in the early part of the month, and met earnings estimates for the quarter and even raised guidance for the full year from $1.55 to $1.60. Unfortunately, revenues came in on the light side, and the market has punished the stock ever since, sending it lower all month. Bottom fishers should be wary on moving into this name because on a technical basis the stock is bouncing off a long-term support level in the $17-18 range.
Baker Hughes (NYSE:BHI) wasn't having such a bad month until the company announced on the last day of August that it was buying fellow oil service company BJ Services (NYSE:BJS), or should I say, stealing BJ Services from its shareholders. The stock ended the month down 15% as investors didn't like the deal despite the fairly low consideration paid.
The worst stock in August 2009 was MetroPCS Communications (NYSE:PCS), which reported earnings early in the month. The company missed on earnings, and didn't add as many net subscribers as investors had hoped. Monthly churn was also high. For August, PCS stock fell 33%. (Learn about more metrics when analyzing telecoms in our article Dial Up Choice Telecom Stocks.)
Electronic Arts (NYSE:ERTS) fell 15.1% during the month. The company reported a loss for its second quarter on a net and adjusted basis, but apparently beat on revenue and earnings expectations. Some investors were disappointed that the company did not raise its outlook for the year. Also, consumers are not buying video games in the same volume as previously, as NPD Group reported that sales of video games fell by 29% in July on a year-over-year basis.
Both MetroPCS and Electronic Arts are the main reason why an investor should stay away from stocks with high growth expectations embedded in them, as something will eventually occur to disappoint its trigger-happy shareholder base.
Utilities used to have a reputation for being stodgy reliable companies that had steady if unspectacular growth in earnings. That was not the case for PPL Corp (NYSE:PPL), which ended August down 13%. PPL Corp reported a loss in its second quarter, and cut its outlook for 2010 from a range of $3.60 to $4.20 per share down to $3.10 to $3.50.
There's nothing worse than sitting on the sidelines and watching a market rally go by without you, but unfortunately for the shareholders of these five companies, that's exactly what happened in August. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
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