Why These 5 Stocks Stumbled in 2012

With only a couple of weeks left in the year, this is a great time for investors to look at the stocks they own and decide whether their performance has met expectations. Let's take a look at some stocks that stumbled in 2012. Then we'll examine what made it such a rough year for each of them.

Stumbling down
Here are a handful of companies that can't wait to close the book on 2012.

Company

YTD Return

Value of $10,000 Invested 5 Years Ago

Diamond Foods (NASDAQ: DMND  )

(56%)

$7,090

Tempur-Pedic International (NYSE: TPX  )

(44%)

$11,060

Best Buy (NYSE: BBY  )

(40%)

$2,810

J.C. Penney (NYSE: JCP  )

(40%)

$4,900

Avon Products (NYSE: AVP  )

(19%)

$3,660

Source: Yahoo! Finance, The Motley Fool. 

Each of these five stocks massively underperformed the S&P 500 and Nasdaq indexes, which returned 11% and 13%, respectively, during the same period.

Investors spend a lot of time focusing on year-to-date returns. But you should also pay attention to other important considerations. For example, don't let a short-term run of subpar performance cloud your judgment of a good long-term company. On the other hand, if company metrics are getting worse and worse, perhaps it's time to sell.


Let's take a closer look at what made 2012 a year chock-full of challenges for these five companies.

A rough in the Diamond
Food producer Diamond Foods was poised to acquire Pringles potato chips from Procter & Gamble last year, but ultimately lost the brand to Kellogg. The deal would've added Pringles to Diamond's existing product lineup that includes Emerald Nuts, Kettle Chips, and Pop Secret. Ultimately, that deal fell though because of accounting problems, which involved shifting payments to walnut growers into future quarters and artificially boosting profit margins.

No spring in its step
Premium bedding maker Tempur-Pedic International posted quarters of disappointing results and slashed its top- and bottom-line guidance for the entire year. In the multibillion-dollar U.S. wholesale mattress market, high-end makers of memory-foam mattresses, like Tempur-Pedic, have been tussling with traditional mattress manufacturers. Tempur-Pedic was crowned the industry darling during the first quarter of 2012, but the company's growth slowed due to a herd of competitors bounding into the profitable memory-foam mattress space. The company announced it'd acquire Sealy (NYSE: ZZ  ) and, with it, enter the mid to lower-end mattress markets. Meanwhile, Tempur-Pedic continually viewed the stock pullbacks as ample share buyback opportunities.

Not your best bet
Troubled retailer Best Buy has suffered multiple quarters of same–store sales declines. Essentially, Best Buy has become a showroom for Amazon.com and failed to deliver exceptional retail experiences for store shoppers. The company's turnaround strategy revolves around improving customer service. But assuming Best Buy does pull it off, it'll take time for the big-box retailer to overcome its many challenges.

Department store doldrums
J.C. Penney CEO Ron Johnson was hired nearly two years ago from Apple, where he oversaw the company's retail stores. In his time at JCP, he's been touting the company's new "shops-in-shop" concept, which he describes as boutiques highlighting the store's best brands. But can this strategy really work in a retail environment where customers aren't clamoring for brands and products sold in the shops? So far, the plan hasn't paid off for J.C. Penney. Meanwhile, Johnson has done away with coupons and, in the process, has driven away longtime, loyal customers.

Slamming the door on this retailer
With the financial backing of Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , fragrance maker Coty made a generous offer to buy out Avon in May. But the deal wasn't sweet enough to get Avon leadership to nibble. Avon is currently ensnared in lawsuits claiming the company wasn't acting in shareholders' best interests by snubbing the offer. Worse yet, Avon's number of independent sales representatives has declined in nearly every geographic market. Avon announced last week that it'd shed 1,500 jobs to help the company's goal of cutting $400 million each year through 2015.

Better luck next year
If you didn't own these stocks in 2012, thank your lucky stars. If, instead, you're still holding on to any of these stocks, strongly consider cutting your losses and making 2013 a better investing year.

So, even if 2012 wasn't your best investing year, get a jump on what stocks might be the winners of 2013.  The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


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