The Midyear Losers

By Richard McCaffery (TMF Gibson)
July 18, 2000

The following companies are among the biggest and most noteworthy losers of the past six months. We're not saying they're bad companies, just that their stock prices have declined since the beginning of the year. Stocks on this list were chosen because of their stories, their industries, and their six-month returns. Prices and returns are as of July 14, 2000.

Abercrombie & Fitch
What a dressing down apparel retailer Abercrombie & Fitch (NYSE: ANF) had in the first half of 2000. The fast-growing company's shares dropped after comparable-store sales hit the skids, the women's clothing line suffered, and a flap with the Securities and Exchange Commission regarding selective disclosure took the luster off its name. Higher interest rates and a tough environment for retailers hasn't helped the picture, as fellow clothing stores Gap (NYSE: GPS) and American Eagle Outfitters (Nasdaq: AEOS) have also suffered. In June, Abercrombie's management said same-store sales are likely to decline during the rest of the summer as it tries to get its women's clothing line back in step. The company has reduced prices to help restore the competitiveness of its brand name.

Excite@Home
Internet access and Web portal company Excite@Home (Nasdaq: ATHM) hasn't been able to keep its footing this year. Its shares have fallen 52%, as investors worried about confusion surrounding the Rule Breaker company's portal and access businesses, changes in management, questions regarding open access of cable lines, and the exclusivity of Excite@Home's contracts. While it's unclear how the company will fare, it's still head of the cable modem pack, a fast-growing industry. The company expects to have 3 million cable modem subscribers by year-end (giving it a hefty lead over competitors), 6 million subscribers by the end of next year, and 10 million by the end of 2002. Interested investors should check out this Foolish interview with Byron Smith, Excite@Home's chief marketing officer.

Carnival
Carnival Corp. (NYSE: CCL), the world's largest cruise operator, must feel like it has been through The Perfect Storm. Higher interest rates, fears of overcapacity, and analyst downgrades left the company's stock price foundering around $19 3/4, its lowest point in more than two years. The shares are off 58%. The company reported flat profits in the second quarter, as high fuel costs and competition weighed down results. Though Carnival is the biggest fish in the sea, it has limited pricing power because of competition. Fears of oversupply aren't likely to abate any time soon, as Carnival has a dozen new ships on the way, due for delivery between 2000 and 2004.

Conseco
Poor Conseco (NYSE: CNC). The insurance and financial services company really had its tree shook this year. Conseco has seen its shares fall 50% after it restated earnings, raised concerns about the quality of its securitized loans, and announced plans to sell its Green Tree financial services division, which it purchased just two years ago for $6.5 billion. Now the company is having trouble selling off the unit. It missed a self-imposed deadline in June and has had to reassure investors that it isn't fighting a liquidity crunch. The company recently named Gary Wendt -- a former GE Capital Services executive -- chairman and CEO. Wendt worked at GE Capital for 15 years and boosted profits to almost $4 billion from $300 million.

FreeMarkets
We could highlight any number of companies scorched in this year's B2B meltdown, but Internet auction company FreeMarkets (Nasdaq: FMKT) is a good place to start. The Pittsburgh-based company's shares are down 84% this year -- not so much because it's done anything wrong. Rather, the Nasdaq skidded and investors started wondering whether they should pay $370 per share for an unprofitable company in an emerging market. Go figure. Still, with its reverse auctions, the company is turning on its head the way raw materials and commodities are bought and sold. FreeMarkets took a tumble in January when it announced it had lost auto giant General Motors (NYSE: GM) as a client to rival Commerce One (Nasdaq: CMRC), but it still provides services to former GM subsidiary Delphi Automotive (NYSE: DPH) and recently landed a multimillion-dollar agreement with Delphi rival Visteon (NYSE: VC).

Globalstar Telecommunications
Satellite telecommunications startup Globalstar Telecommunications (Nasdaq: GSTRF) isn't the worst-performing stock in the markets so far this year, but it's high on the list. The shares plummeted 76% since January, just as the company rolled out services. Globalstar has been ramping up to offer consumers virtually worldwide telephone service from wireless, handheld phones. Lukewarm subscriber acquisition rates, the weight of a heavy debt load, need for future financing, and long shadows cast by the failure of Iridium and ICO Global spooked investors. While it may be unfair to compare Globalstar to Iridium since the systems are so different, Globalstar faces the same challenge: It must build a satellite telephone business from scratch as the cellular phone industry thrives.

NBC Internet
Internet portal company NBC Internet (Nasdaq: NBCI) had a short-lived honeymoon on Wall Street. The company -- which is actually the aggregation of broadcast, Internet, cable television, and radio assets -- went public in late November and started trading around $75 per share. It's now trading 81% lower. What happened? In addition to brand confusion brought on by NBCi properties Snap.com and Xoom.com, which will be phased out later this year, the company warned in June that revenues for the rest of the year will come in lower than expected because of a soft dot-com advertising market. This is big medicine, since the bulk of NBCi's revenues comes from advertising. Investors have come to doubt that advertising-based business models are sustainable, and NBCi's stumble added fuel to the fire. The company said it's moving to diversify its revenue stream by shifting away from online advertisers to offline advertisers. Time will tell if this strategy fits the bill.

Proctor & Gamble
Consumer products giant Procter & Gamble (NYSE: PG) got taken out with the Tide in the first half of the year after a series of profit warnings. The slip-up not only cost the manufacturer of Pringles chips and Crest toothpaste 49% of its stock value, but it cost Chairman, President, and CEO Durk Jager his job. New President and CEO A.G. Lafley is trying to steer the ship back on course, after Jager's aggressive growth plan seemed to put too much stress on the old iron. In 1997, Jager promised to double sales to $70 billion by the end of 2005. That's now what a sales whiz would call a "stretch target." Fourth-quarter sales growth in the 2% to 3% range is expected, which puts fiscal 2000 revenues at about $40 billion and up just 5% from last year.

Red Hat
It's been a busy nine months for Red Hat (Nasdaq: RHAT), but the company, which packages open-source software products and quickly became the poster child for the Linux-based software movement, has been more a victim of the markets than poor execution or planning. Its shares soared 200% on its first day of trading in August and rode a wave of momentum to $150 per share before toppling with the Nasdaq. So far, its shares are down 76%. Still, it's at the forefront of a growing software movement and has formed strong partnerships with leading vendors in the computing industry: IBM (NYSE: IBM), Dell (Nasdaq: DELL), Oracle (Nasdaq: ORCL), and Compaq (NYSE: CPQ). Red Hat's revenues grew 95% to $16 million in the fiscal first quarter. Impressive, yes, but it's still working off a pretty small base. The company has a long way to go to justify its $4 billion market value.

Wild Oats Markets
The stock market plowed natural foods supermarket operator Wild Oats Markets (Nasdaq: OATS) three feet under this year. Shares of the popular chain have fallen 39% in 2000 as comparable-store sales dropped steadily -- from an 8% growth rate in Q1 1999 to a 2% decline in Q1 of this year. Not very appetizing, especially since the company has been expanding quickly to compete with rival Whole Foods Market (Nasdaq: WFMI). Things came to a halt in May when Wild Oats said it would close eight stores and take a $15 million to $20 million charge related to a strategic repositioning. As part of the plan, the company is increasing the average size of its stores, expanding its gourmet food products section, and adding items such as housewares and gifts, as well as expanding its bakery and floral departments. Hard to say if this will do the trick, but it's in line with trends in the supermarket industry. Average store sizes have gotten bigger (though Wild Oats will still be smaller than the average supermarket) and companies have had success boosting sales by adding additional departments.

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