3 Stocks Stumbling Into 2013

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I took a look last week at three companies that stumbled out of the gate in 2012 but are closing the year on a great run. Today, I'm after stocks that have the opposite momentum. They were market darlings early on, but have fallen out of favor lately. Is the recent drop an opportunity to pick up shares on the cheap, or a sign of more bad news to come?

Darden Restaurant's (NYSE: DRI  )  fall is more of the latter. The owner of the Red Lobster and Olive Garden chains scored some solid business wins early on this year. Poaching market share from rivals in the winter months, Darden grew sales by 4.1% in its core brands while the industry expanded by just 2.6%. Profitability also jumped by 16% as food cost inflation eased significantly. With costs falling and sales rising, the company looked set for a big year. CEO Clarence Otis even boasted about the solid momentum in March, saying, "We continue to anticipate strong earnings growth in the fourth quarter and remain excited about what we can achieve next year and beyond." Wall Street agreed, sending shares up 25% by early fall.

But Darden's latest quarter has been nothing short of a disaster. Customer traffic fell off a cliff in the fall. Competitors poached back their customers with much more effective promotions in the back half of the year, forcing Darden to slice its earnings forecast. And negative media coverage around a failed experiment to cut health care costs has hit the brand, too. The company's 4% dividend yield may look tempting, but this restaurant operator's 20% fall into 2013 is well deserved.

Shift into reverse
AutoNation's (NYSE: AN  ) dip doesn't seem as warranted, though. The stock performed well through October, hitting a 31% return for the year as auto sales climbed. But shares are down 20% since notching the high in October. Yes, the company missed third-quarter earnings estimates, but only by a penny. And that wasn't because of any surprising weakness in the business. Profits were up 40% in the quarter, on a 12% bump in revenue.

AutoNation's earnings miss happened because the company pulled back on share repurchases in the third quarter. While the market could be reading that as a sign that shares were overvalued, that's an insane reason for a growing company to fall from 19 times trailing earnings to just 16 times, currently. That's especially true with recent trends in the sector pointing to more strength. For example, Ford (NYSE: F  ) called November "a strong month for the industry" while booking an 80% jump in small-car sales last month.

With Asian sales up, and a strengthening U.S. market, AutoNation has powerful business trends to look forward to. So my prediction is that the stock will come around to reflect that strength in 2013. 

Falling apples
The same goes for this tech giant. Apple (NASDAQ: AAPL  ) set a lot of business records in 2012, but who would have guessed in September that Most Capital Destruction would be one of them? Amazingly, $170 billion of market capitalization has vanished from the shares since they hit an all-time high three months ago.

Before then, the stock had managed an epic 75% climb on the year. And for good reason. The market saw growing iPad sales plus contribution from a new model at a cheaper price point: the iPad Mini. And the iPhone 5 brought a major refresh of the iPhone, with an aggressive international rollout to boot.

Yet worries over soft iPhone sales have many investors pressing the sell button. And Google's (NASDAQ: GOOGL  ) Android system is growing like a weed, at over 1.3 million units being activated per day. In addition, this holiday season will be the first that Apple doesn't have the tablet market all to itself. There are strong new entrants there, including Google's Nexus 7, for Apple to contend with.

Still, Apple is no underdog. Even including the two recent earnings misses, the company raked in $160 billion in revenue and close to $45 a share in profits in the latest fiscal year. After disrupting the music business, smartphones, and the PC industry, Apple now has its sights set on television. That makes the rough end to 2012 -- which has brought shares down to just 11 times earnings -- an opportunity to snap up a growing business at a reasonable price.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more important, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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