With the February market turmoil fresh in everyone's minds, it's hard to remember that some companies had a dismal January, too. And it's especially important for investors looking to pick up some bargains to know which stocks are down thanks to the February market correction -- and which ones were already heading south.
Three stocks that suffered in January despite the S&P 500's 5.6% gain included industrial stalwart General Electric (GE 0.85%), down 7%; air carrier Alaska Air Group (ALK 7.03%), down 11%; and miner Northern Dynasty Minerals (NAK +4.43%), down an astonishing 44%.
Here's why they flopped -- and what to do now.
The stock market has trended downward, but these three companies were already on the rocks. Image source: Getty Images.
GE slumps -- again
Shares of industrial giant General Electric have been slumping for more than a year, so it's hardly a surprise that they did so again in January. But in this instance, the stock was hit with a double-whammy in the form of a tepid earnings report and an unexpected insurance charge.
The insurance charge grabbed many headlines, and the details are complicated, but the upshot is that, thanks to accumulated charges stemming from a decade-old insurance business, GE had to take a $6.2 billion after-tax charge in 2017, and its GE Capital financial arm is now on the hook for some $15 billion in additional charges over the next seven years. The good news is that GE Capital seems to have the liquidity to make these charges. The bad news is that GE Capital will have to suspend the dividends it had been paying to its parent company.
On top of that, the company's power segment -- its largest by revenue -- posted a massive decline in year-over-year profit for both Q4 and full-year 2017. Annual profit was down 45% for the troubled unit, while quarterly profit was lower by an incredible 88%. CEO John Flannery said he expected "market challenges" to continue, in yet another worrisome sign for investors.
It's possible that all the bad news has finally come out for GE, and that the company's stock hit bottom at $14.25 a share during the February market correction. But even if that's true, it's likely to be a long, slow road to recovery -- or a company breakup -- for the industrial giant, and investors are probably better off putting their money elsewhere.
More than it could chew
GE wasn't alone in a poorly received earnings report this January. Troubled Alaska Air Group, owners of Alaska Airlines and Virgin Atlantic, saw its stock dip below $60 a share after the company reported a year-over-year decrease in EPS. That's down from more than $90 a share a year ago.
The company's EPS decline from $7.32 to $6.64 might seem fairly small. The problem is that Alaska Air completed its merger with Virgin Atlantic near the end of 2016, so you'd expect earnings to have increased, not decreased, now that the combined company is the fifth largest U.S. airline. And indeed, passenger revenue was up 36% for the year, but profit didn't cooperate.
Some of this was thanks to higher fuel costs, which don't look like they'll be going away anytime soon. Some was due to a slower-than-anticipated development of the synergies with Virgin. In 2018, a new pilot contract is also likely to increase costs, as may a new flight attendant contract that's currently being hammered out.
Given the issues Alaska Air Group is experiencing, it doesn't look particularly attractive for investors, especially not compared with some of the other carriers, like Southwest Airlines, which had a fantastic 2017 and looks poised for a good 2018 as well.
Pebble goes bam-bam
The smaller a company is, the more volatile it tends to be, and that's certainly the case with one of this January's biggest losers, Northern Dynasty Minerals.
Northern Dynasty has one really big thing going for it: It owns the largest undeveloped gold and copper mine in the world. The mine, located in Alaska, is referred to as the Pebble Project.
Before you get excited, though, the key word here is "undeveloped." As in, there's no money coming in from this mine yet, and there probably won't be until 2024. In the meantime, Northern Dynasty has to perform a series of preparatory tasks, which include things like getting permits, conducting feasibility, engineering, and environmental studies, and securing financing for the upfront costs.
Because the company is so small, though, it also needs a partner, which it was supposed to find by September at the latest. Currently, copper miner First Quantum Minerals has an option but hasn't made a public commitment.
But the EPA dealt a big setback to the project in late January, leaving in place a 2014 determination that the project could cause irreparable harm to the Bristol Bay watershed. That caused shares to tank.
Uncertainty surrounding the project and First Quantum's role in it continues to abound, and the stock will probably be volatile until things shake out. Investors are probably better off putting their money elsewhere unless they can stomach a high amount of risk for a faraway reward.
Investor takeaway
Many, many stocks are cheaper today than they were at the first of the year. And now looks like it might be a good time to go shopping for bargains. Unfortunately, GE, Alaska Air, and Northern Dynasty are in the bargain bin not because they were swept up in a selling frenzy, but because of serious issues with their near- and medium-term corporate outlooks. Investors can find much better -- and safer -- companies in which to invest.
