In a booming market, it's easy to find winning stocks. But even in the biggest bull markets, some stocks always lag behind. The question, then, inevitably becomes this: Are those stocks great values, or are they lagging for good reason?
Two months into the new year, short-term winners and losers have started sorting themselves out for 2012. So let's take a look at the five worst performers in the S&P 500 with an eye toward discovering what's behind their stock price declines -- and potentially unearthing some bargains in the process.
Apollo and its peers have been under fire for quite a while now. The government has been hostile toward the entire for-profit education industry in recent years, alleging a variety of questionable practices involving federally funded student loans and weak graduation rates.
Most of Apollo's plunge came just a couple of days ago, when it projected that new student enrollment rates would drop, reversing previous expectations for growth. For the stock's big drop to make sense, you have to believe that the current enrollment declines are just the tip of the iceberg -- and the beginning of a lasting trend that could eventually even threaten the industry's survival.
If you only look at earnings releases, it may seem strange to see Electronic Arts on this list. The company beat analyst expectations for both sales and earnings in early February. With franchises like Mass Effect 3, Star Wars: The New Republic, and Madden NFL, EA has plenty of good content.
What EA needs to do, however, is convince investors that social gaming isn't a threat to its more console-centered model. The popularity of Zynga has convinced many that lower-margin online games will eventually price EA and its peers out of the business. Yet despite recent weakness in the gaming industry, gamers will always reward good content -- and as long as EA delivers, it's likely to find ways to turn around its recent losses.
Grocery store chain SUPERVALU's problems have been around for a while. In January, the company announced a wider net loss due to rising food costs and intense competition, even as the company had planned to try to expand. Now, SUPERVALU has scaled back its planned Save-A-Lot chain expansion.
Yet for value investors, the long-term story remains the same. SUPERVALU is slowly but surely cutting its debt, and even with the weak margins throughout the grocery business, SUPERVALU trades at multiples that are just half of what competitors Kroger and Safeway sport. Rising Star analyst Jim Royal thinks there's value in SUPERVALU, and investor recognition of that value could boost shares in the long run.
International Game Technology
You'd think that this slot-machine maker would be benefiting from strength in the casino gaming industry, especially overseas. Yet the company continues to languish, with sales having fallen 1% in its most recent quarter despite substantial international growth.
Even after the decline, though, IGT is only cheap if you expect a big boom in earnings down the road. Until a lasting U.S. recovery puts Las Vegas back on the map, it's hard to see a catalyst for IGT to rebound.
Frontier demonstrates that if you live by the dividend, you die by the dividend. The rural telecom had to cut its payout for the second time since 2010. Going forward, shareholders will only get $0.10 per share quarterly, down from $0.25 before the cuts.
Yet Frontier shares have already risen from their worst levels. After seeing shares decline throughout 2011, investors appear to believe that analyst-beating earnings may be enough to sustain a more manageable payout. Moreover, the stock still yields 8% -- a hefty dividend by any standards. Investors willing to take on some risk may want to give Frontier a chance.
Just as not all soaring stocks are destined to crash, you won't always find true bargains when you look at the market's biggest casualties. But it's still worth looking. Every once in a while, you'll find some beaten-down values with a lot of promise.
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Fool contributor Dan Caplinger loves to bounce. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of SUPERVALU and International Game Technology. Motley Fool newsletter services have recommended buying calls on SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy rolls with the punches.