The 10 Worst Stocks in the S&P 500 in 2015

Energy stocks got crushed in 2015. Image source: Chesapeake Energy.

To the casual observer, the S&P 500 (^GSPC 1.20%) looked like it had a boring year in 2015. The index eased downward less than 1%, eking out a slight positive total return after accounting for dividends. But there were many stocks in the index that truly plunged in 2015, and as you'd expect from the drop in crude prices, energy stocks featured prominently among them. Let's take a look at the list of the worst stocks in the S&P with an eye toward finding prominent trends.

Data source: S&P Capital IQ.

Energy gets crushed
The sheer number of energy companies on the list of worst performers in the S&P 500 shows just how unprecedented the decline in the sector was. In past years, rising energy producers in the U.S. had benefited from the fact that existing major players in the industry like Saudi Arabia were willing to accept market-share declines in order to help sustain prices near triple-digit levels. Yet during 2015, oil cartel OPEC chose to stop trying to keep supplies in check, flooding the market with cheaper crude in an effort to force out higher-cost producers. Regardless of whether that move might be successful in the long run, a single year wasn't enough for the resulting shock to work through the system and reflect itself in the supply and demand equation.

For many companies, aggressive investment decisions in the past came back to haunt them. Chesapeake is a good example, with the company coming into the year with debt of $11.5 billion, leaving it in a much weaker position to try to take advantage of strategic opportunities in the industry and instead having to fight for its life in the tough market. Chesapeake saw its bond ratings fall below investment grade, further heightening its interest expense, and it is still having to work to restructure its debt in a sustainable way for the future.

Meanwhile, assumptions about how various energy companies would respond to falling prices turned out to be wrong. Many people believed that Kinder Morgan would be safe regardless of what oil prices did, as the energy infrastructure company profits not from the price of oil directly but rather from volumes of production sent through its pipelines and other assets. Yet when prices fell so far, it had an obvious impact on production activity throughout the industry, and infrastructure plays like Kinder Morgan proved vulnerable to the downturn. Slashing dividends throughout the MLP space didn't help either, as companies throughout the sector looked to conserve capital.

Beyond energy
Other sectors of the economy had their own troubles, but few rivaled what energy went through. For Freeport-McMoRan, exposure to the oil and gas sector through its recent acquisitions proved ill-timed, resulting in falling dividends and huge losses. But plunging prices for copper and other industrial metals hurt the mining side of Freeport's business, and now, Freeport will have to deal with tough conditions in both of its major divisions. Attempts to raise capital were successful but came at a cost to existing shareholders, and further strategic moves might be necessary to shore up Freeport's finances.

Meanwhile, Micron Technology suffered from the return of price wars for NAND flash and DRAM memory chips. Huge ramp-ups in supply from competitors forced the entire industry to cut prices, eating into margins and leaving Micron and its peers to fight over the scraps. In the long run, most agree that 2015's weak demand will eventually reverse course, as the rise of the Internet of Things makes it more important than ever for an increasingly automated world to have the hardware to back it up. Those who've endured past cyclical swings in the memory chip space know all too well how painful the downward moves can be -- and how quickly they can give way to huge turnarounds.

Energy held back the S&P 500 in 2015, and the declines that many energy stocks saw were cataclysmic. For the S&P to rebound in 2016, energy will likely have to play a role in supporting the overall market and giving investors more confidence in the future.