Tickers in this Article: DF, APOL, HRB, DO
The worst performing stocks in the S & P 500 in 2010 were from a wide variety of industries, including consumer, financials and energy. Investors might want to use this list as a starting point to screen for investments for 2011.

IN PICTURES: 10 Ways To Prepare For Nature's Worst

Sour Milk
Dean Foods (NYSE:DF) was the worst performing stock in the S & P 500 in 2010, falling 52%. The company is facing a margin squeeze as it is caught between rising prices for many of its commodity inputs, and lack of pricing power for its products.

Dean Foods missed consensus estimates in three of the last four quarters, and has seen earnings estimates for 2011 cut by 33 cents over the last 90 days, from $1.14 to 81 cents per share.

Death and Taxes
H&R Block (NYSE:HRB) was nearly as bad, and finished 2010 down by 48%. The company's latest problems involve regulatory issues regarding refund anticipation loans, a large source of earnings for H&R Block. The Office of the Comptroller of the Currency recently ordered the company's banking partner not to be involved in these types of loans, and the company may not be able to find another partner so close to tax season.

H&R Block is also still haunted by its foray into subprime from 2005 to 2007. Many of these loans are subject to recourse provisions and the performance of this portfolio going forward will probably make the stock volatile for 2011.

Another industry that was subject to heightened regulatory exposure in 2010 was the for-profit education group. This industry is battling the perception that the services and products it provides to students are inadequate and that these educators fail to prepare students for their desired careers.

The Federal Government is a large source of revenue for most companies in this industry and has started to explore changes in how it subsidizes education. Investors rightly fear that these changes will impact the industry's business model. Apollo Group (Nasdaq:APOL) is one of the leaders in the for-profit education industry, and fell 34.5% in 2010.

Oil Turmoil
Diamond Offshore Drilling
(NYSE:DO) lost 33% in 2010, as this offshore drilling company suffered from turmoil associated with the BP (NYSE:BP) oil spill in the Gulf of Mexico.

Diamond Offshore Drilling missed consensus earnings estimates for three of the last four quarters, and has seen a steady decrease over the last 90 days in earnings estimates for 2010 and 2011. Analysts are now looking for earnings per share of $6.48 in 2011, about flat with 2010.

Diamond Offshore Drilling is confident about the future, however, and just announced that it will build a new $590 million drillship to be delivered in 2013. The company also has an option to build a second drillship at the same shipyard.

Bottom Line
Investors looking to position portfolios to outperform the market in 2010 might want to start with a look at the worst performing stocks from last year. These names came from a broad spectrum of the market including energy, financials and consumer. (How can you assign a value to what a company may do with its business in the future? We explain how it works. Check out Pin Down Stock Price With Real Options.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center