If you want to find the best-performing stocks in the market, the worst feeling in the world is seeing those stocks start out the year with a big drop. In less than two weeks, you can easily find yourself in a hole that will take you all year to dig out of if you're lucky -- and if you're unlucky, it may be just the tip of the iceberg.
Of course, just because stocks move downward for a few days or weeks doesn't mean they're doomed to plummet for the rest of the year. But by taking a look now at the companies that are doing badly in the first trading sessions of 2012, you may be able to figure out a common thread that explains their bad performance. And even better, that insight may help you avoid future pitfalls in your portfolio -- before they take a big bite out of your net worth.
Why are these stocks blowing it in 2012?
For the most part, the stock market has done well so far in 2012. The S&P 500 (INDEX: ^GSPC) eked out its sixth gain yesterday in seven sessions so far this year, with a total rise of almost 3%. For comparison purposes, remember that in 2011, the S&P only managed a total return of about 2% for the entire year.
But that doesn't mean that every stock has done well. I decided to take a closer look at the worst performers in the S&P 500 during the first 11 days of the year to see if I could find any common threads. Here's what I found:
1. Urban Outfitters (NAS: URBN) , down 13.2%
Urban Outfitters is dealing with a corporate crisis. CEO Glen Senk resigned unexpectedly yesterday, tossing the stock for a loss of nearly 19%. Senk had been with the company for 18 years, manning the helm since 2007. With retail more challenging than ever, the idea of a power vacuum at the top has Urban Outfitters' shareholders scared.
But as fellow Fool Alyce Lomax pointed out, investors shouldn't be scared. That's because board chair and co-founder Richard Hayne has taken Senk's place as CEO. It's hard to argue that the company won't have strong leadership when one of its original builders retakes the helm.
2. Range Resources (NYS: RRC) , down 12.2%
Range Resources faces a much more fundamental challenge than Urban Outfitters: Its primary product isn't producing the profits it once did. As a major natural gas producer, Range Resources needs high natural gas prices to produce income.
Unfortunately, natural gas is killing Range Resources. Yesterday, gas prices fell to their lowest levels in a decade, as warm weather and weak demand combined with the huge supplies from new shale gas finds. Until those low prices spur development of alternatives to oil that use plentiful and cheap natural gas, Range Resources will be hard-pressed to reverse its downward course.
3. CareFusion, down 10%
As earnings season begins, you'll start seeing more stories like CareFusion's. The company, which makes hospital products such as infusion pumps, saw its stock drop almost 9% on Monday as it missed earnings expectations and had to lower guidance for the remainder of its fiscal year.
Over the long run, CareFusion is still sticking with longer-term goals to maintain growth in operating margins and sales. But if you're not patient enough to hold on for the long haul, then even the modest cut in profit expectations could be enough to force you out of the stock now.
4. SUPERVALU (NYS: SVU) , down 9.6%
The grocery industry is an ultra-competitive business. With low margins and lots of players, it's hard for companies to deal with macroeconomic factors like rising food costs.
SUPERVALU announced yesterday that it would miss estimates on full-year 2012 revenue. But more important, it had to scale back on its planned Save-A-Lot expansion. Those moves aren't necessarily terrible in the long run, but the reaffirmation of the short-term headwinds hitting the company threw cold water in investors' faces.
5. Tiffany (NYS: TIF) , down 9.5%
Everyone seemed to believe that the retail industry was divided into two sets of haves and have-nots. Luxury and deep discount were thriving, while mid-range retailers struggled.
But Tiffany put the lie to that sentiment earlier this week, cutting its full-year guidance and sending shares plunging. Weakness in both Europe and the U.S. pulled down the company's earnings estimates for the fiscal year by $0.10 to $0.15 per share. Tiffany says it can still pull off its global expansion plans, but with Europe in crisis, it's hard to share the company's confidence.
Don't start your 2012 on the wrong foot
If you own these stocks, you have my regrets for your loss -- but don't just blindly sell your shares simply because they show up on the worst performers list over a two-week span. Instead, look more closely to see if their future prospects are still there.
And if you don't own these stocks, you're not safe yet -- because the stocks you do own could face the same problems soon. Let this serve as a reminder to keep an eye on your portfolio and look for signs of weakness before a big loss happens.
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At the time thisarticle was published Fool contributor Dan Caplinger usually starts on his left foot for some reason. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended buying shares of Range Resources and buying calls in SUPERVALU. 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 Fool's disclosure policy stands on both feet.
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