A frequent stock market meme over the last year or so has been that it is a “stock pickers market”: With volatilityseemingly absent across Wall Street, investors are under more pressure to find individual investments that help their portfolios outperform.
And there are no shortage of stocks where investors have staked their claim, arguing that some stocks are going to $US0, and that others are going to the moon.
This year’s list of the most controversial stocks includes the world’s largest technology company, a troubled mobile game maker, and two companies lead by the incredible Elon Musk.
Some of these companies are facing attacks from hedge funders or analysts that believe their businesses are fraudulent or illegal, or simply a little overhyped. Other stocks are facing extinction, or are new to the public markets and have found out quickly how fickle stock investors can be
Based on our analysis of the current stock market landscape, here are the stocks, ranked from least to most controversial, that we will be keeping an eye on into the summer.
Sector: Information Services
52-Week Performance: -10%
Performance From March 5 All-Time High: -64%
What's Going On: FireEye shares took an absolute beating in March and April, at one point losing more than 70% from their March 5 closing high of $US95.63. FireEye stock was the poster-boy for the sell-off in momentum names that took place during the spring.
What Happens Next: Analysts at Barclays recently upgraded FireEye and said it was time to buy the stock after the aggressive sell-off. The stock hasn't broken below $US30 in the last couple weeks and may have found a temporary bottom. Investors maintain long memories of painful losses, but FireEye would argue it has the most innovative internet security platform on the market, and the stock might be getting its act together.
Sector: Alternative Energy
52-Week Performance: +1066%
What's Going On: Plug Power stock went nuts in the beginning of this year, closing at $US1.55 on December 31 and closing as high as $US10.31 on March 10. Things got really out of hand in mid-March when the stock traded between $US6 and $US10 during five trading sessions that saw more than 100 million shares change hands each day. Short selling blog Citron Research called the stock a 'casino stock.' At the height of the Nasdaq in early 2000, the stock traded above $US1000 and was trading below $US1 for much of 2013.
What Happens Next: Plug Power, reported first quarter revenue of $US5.6 million and an adjusted net loss of $US6.4 million. Fuel cell stocks went crazy earlier this year, and may do so again, but given that Plug was basically a penny stock for most of 2012 and 2013, this one will probably just continue to be a favourite of speculative traders looking for a quick profit.
Sector: Information Technology
52-Week Performance: -16%
What's Going On: It's been a tough 2014 for Groupon. The company's top tech guy left in February. That same month, the company reported disappointing earnings and the stock tumbled. Groupon ousted CEO and founder Andrew Mason in February 2013. In 2011, BI's Nicholas Carlson wrote an in-depth profile of the company, and things were already going south ahead of the company's IPO.
What Happens Next: Groupon, like Zynga, came public in late 2011, but faced the problem of how to turn a profit with free mobile applications. Following Mason's ouster, Groupon stock had a decent run through 2013, but investor enthusiasm over a new management team seems to have waned.
Sector: Consumer Discretionary
52-Week Performance: +3%
What's Going On: Last year, Dan Loeb took a roughly 9% stake in the auction house, and began agitating for change at the company, including calling for the CEO to step down. Sotheby's then adopted a 'poison pill,' which prevents any one shareholder from taking a stake in the company larger than 10%. In April of this year, Sotheby's filed a lengthy investor presentation arguing against the merit of adding Loeb or his associates to the company's board, characterising Loeb as a slash and burn investor.
What Happens Next: Famed short seller Jim Chanos recommended shorting Sotheby's, not because of Loeb's involvement in the company, but because of the stock's boom and bust performance relative to stock market bubbles. Back in 2012, after Edvard Munch's 'The Scream' sold for $US120 million, BI's Joe Weisenthal highlighted the incredible boom and bust performance of Sotheby's stock. Sotheby's stock is currently trading right around where it was when Loeb first took his stake in August 2013, but history has shown that where the stock goes from here might have to do with bigger economic factors that are beyond the company's direct control.
Sector: Information Technology
52-Week Performance: +50%
Performance Since Einhorn's Short Call: +1%
What's Going On: Noted hedge funder David Einhorn recently outlined his short case for the stock in a presentation at the Sohn Investing Conference. Einhorn doesn't think the stock will go to zero, but said at current levels it is grossly overvalued. Einhorn's bull case is for the stock to fall to $US50, his bear case is for it to fall to $US14; shares of Athenahealth currently trade at about $US125. Athenahealth's CEO is Jonathon Bush (yes, that kind of Bush) who went on CNBC after Einhorn's presentation and enthusiastically declared that the company's stock is worth $US1000.
What Happens Next: Athenahealth shareholders saw the stock run more than 80% in 2013, but the stock topped out at $US200 in early March and fell to less than $US140 even before Einhorn came out against the company. Shares are trading roughly where they were ahead of Einhorn's presentation, but after such a steep run up Athenahealth investors might be content to see the stock do nothing for a while, especially knowing Einhorn is out there calling for the stock to fall down into the $US30s.
Sector: Information Technology
52-Week Performance: +4%
What's Going On: Back in 2012, not long after the mobile gaming company went public, we asked if Zynga was doomed. In January, Zynga fired 15% of its workforce. In April, founder Mark Pincus stepped down from his day-to-day operational role with the company. Pincus' announcement came with the company's first quarter earnings, which showed revenue fell 36% year-over-year.
What Happens Next: Zynga is still trading around $US3, and the company doesn't appear all that healthy. They company swung to a loss this year from a small profit in Q1 2013, and revenue fell sharply. Zynga's blockbuster 'Words With Friends' is now an afterthought in mobile games, and the company probably needs another big hit to really turn things around.
Sector: Consumer Discretionary
52-Week Performance: -49%
What's Going On: SodaStream makes an at-home soda machine similar to Green Mountain's Keurig coffee machine. This year, SodaStream dealt with controversy regarding its Super Bowl ad. Sodasteam is endorsed by Scarlett Johansson and had Super Bowl ads banned two years in a row, purportedly for attacking Coke and Pepsi. This year's version poked fun at the controversy. SodaStream has also dealt with PR problems regarding its West Bank factory, recently chronicled by The Verge. SodaStream shares also came under pressure in February after Coke announced it would take a 10% stake in single-serve coffee maker Keurig Green Mountain.
What Happens Next: Reports in the past have linked SodaStream with Pepsi, and shares of the company were bid up last summer partly as a result. Based on the reaction Green Mountain stock had to the company's deal with Coke earlier this year, SodaStream investors are jonesing for a deal. For the first quarter, SodaStream reported sales that grew just 0.4% year-over-year, and the company might need a bigger partner sooner rather than later.
Sector: Consumer Electronics
52-Week Performance: +45%
What's Going On: Apple has been one of the hottest stocks of the last decade, and since topping out at $US703 a share in October 2012, shares have been a battleground stock for investors. Apple shares have been on a tear since bottoming at $US390 last summer, and analysts have turned bullish on hopes of the company rolling out new products this year, such as an all-in-one television, watch, or larger iPhone.
What Happens Next: Apple began trading Monday on a split-adjusted basis after a 7-for-1 stock split, which means nothing for the value of the company but does mean it will probably get into the Dow the next time the blue-chip index rebalances. The rumour mill on when the company will launch new hardware is almost spinning too fast to keep up with, but after the company only announced software upgrades at its WWDC presentation on June 2, investors and customers will be eagerly awaiting something new later this year.
Sector: Solar Energy
52-Week Performance: +40%
What's Going On: The solar energy space has been among the most controversial of the last decade. SolarCity is not only part of that sector, but also boasts Elon Musk, the billionaire founder and CEO of Tesla Motors, as its chairman. SolarCity recently did a Groupon, and the stock surged after the company's first quarter earnings report. SolarCity shares enjoyed a strong 2013, partly aided by investors wanting a piece of any company Elon Musk was involved with.
What Happens Next:SolarCity has had a rough 2014 after peaking above $US80 in February and falling to about $US50 today. SolarCity differentiates itself by having low or no up-front costs, and at a recent conference General Electric CEO Jeff Immelt said he wishes he had thought of SolarCity. The energy landscape in the U.S. is rapidly changing, and analysts at Barclays recently outlined how solar energy can destroy electric utilities. There is certainly a long way to go for solar to really overthrow utilities, but its hard to bet against Elon Musk these days.
52-Week Performance: +65%
Performance Since Valeant's Bid: +22%
What's Going On: Rival Valeant and activist investor Bill Ackman have teamed up to make a joint hostile bid for the Botox-maker. Allergan has rejected both of Valeant's offers, and on May 27, one day ahead of Valeant's second, increased offer, Allergan filed a presentation titled, 'Certain Potential Business Risks And Issues With Valeant Pharmaceuticals.'
What Happens Next: Allergan shareholders have seen the stock gain more than 30% since Valeant and Ackman made their first bid for the company in late April. To hear Allergan tell it, the company and its shareholders would be better served if it manages to fend off Valeant's bid. But the cash-for-equity swap Bill Ackman proposed as part of Valeant's latest offer shows that side is willing to find creative ways to make this deal happen.
52-Week Performance: +48%
Performance Since Bid For Allergan: +0.5%
What's Going On: Valeant, which has acquired dozens companies since CEO J. Michael Pearson took over in 2008, is seeking to acquire Botox-maker Allergan in a hostile takeover. Valeant has teamed with hedge fund firebrand Bill Ackman in its efforts to acquire Allergan. Valeant's most recent offer for Allergan includes $US72 per share in cash and 0.83 shares of Valeant for each Allergan share owned.
What Happens Next: Valeant has twice raised its offer for Allergan, and following the company's latest offer Allergan said it will, 'carefully review and consider' the proposal. As part of Valeant's most recent offer for Allergan, Ackman agreed to forfeit the cash he'd be due as a result of his stake in Allergan and convert that amount into Valeant stock. This latest tactic from Ackman indicates that he and Valeant are willing to find creative ways to make this deal work, despite all indications from Allergan's side.
Sector: Consumer Discretionary
52-Week Performance: -78%
What's Going On: The specialty cupcake shop traces its rise to prominence to a gourmet cupcake craze started by 'Sex and the City.' The first Crumbs opened in 2003 on Manhattan's Upper West Side, and the company went public in 2011. The company is now on the verge of bankruptcy.
What Happens Next: The company's auditor expressed doubt over its ability to stay in business, and in recent filings with the SEC, Crumbs said it will need to raise funding by June 30 to avoid running out of money, potentially triggering bankruptcy proceedings. Either the company finds money to stay in business or winds down operations, but either way it appears something will give soon.
Sector: Information Technology
52-Week Performance: +16%
Performance Since Muddy Waters Short Call: -60%
What's Going On: In October, research firm Muddy Waters, which is famous for its short calls on Chinese companies, said NQ Mobile has a bunch of fictitious revenue, particularly in its mobile security segment. NQ Mobile, which maintains dual headquarters in Beijing and Dallas, saw shares fall sharply after Muddy Waters' initial call, and the firm pounded the table following its report, publishing a note outlining the 'Top Ten Lies' NQ Mobile told in its initial self-defence.
What Happens Next: Last week, NQ Mobile shares surged after the company published a report that concluded, among other things, that it hasn't engaged in the fraudulent activity alleged by Muddy Waters. NQ Mobile shares were trading above $US20 before Muddy Waters' report, and after rebounding some in the months following that report, the stock is now below $US10. Muddy Waters made some big claims about the company, but NQ Mobile also has a long way to go to earn back the trust of investors.
Sector: For-Profit Education
52-Week Performance: -32%
What's Going On: The for-profit education sector has long been controversial. The U.S. Department of Education recently claimed that 72% of graduates from for-profit education colleges earn less than those without a high school diploma. For ITT Educational in particular, the company recently withdrew its full-year outlook, citing uncertainty related to regulatory inquiries on some of its accounting related to student loans.
What Happens Next: Investors were clearly not thrilled with ITT's disclosure that accounting issues will delay the reporting of its financial statements, including its 2013 annual report. Since trading at more than $US100 in early 2009, ITT has fallen by more 80% and trades at less than $US20 per share today. Total student enrollment fell 13.5% in 2011, 16.6% in 2012, and while the aforementioned accounting issues prevented the company from filing a report for 2013, in the first quarter of this year, enrollment fell 6.4%. This trend will have to reverse if the stock, and the company, hopes to turn around.
Sector: Auto Manufacturing
52-Week Performance: +104%
What's Going On: Tesla was the face of the 2013 bull market. Shares of the electric car maker gained more than 350% in 2013, and at one point in October of last year, was up nearly 500%. Tesla, which was founded by Elon Musk, has continued to add to those gains in 2014, though the stock sold off following its first quarter earnings report in early May. Also in May, analysts at S&P put a 'junk' rating on Tesla's bonds. Year-to-date, shares are up more than 30%, but at about $US210 are well off their record level of $US250 reach in February.
What Happens Next: Tesla expects to deliver more than 35,000 of its Model S electric car in 2014. But the real fate of Tesla probably lies in the success or failure of the gigafactory, which is CEO Elon Musk's major play to bring down the cost of lithium ion batteries. Musk has been frank about the company's need to bring down the cost of lithium ion batteries in order to really ramp up vehicle production. Shares of Tesla will likely continue to be among the most followed and traded in the market. Last year, Musk said the stock was overvalued, and the real health of Tesla will likely continue to be divorced from the price of its stock.
Sector: Consumer Goods
52-Week Performance: +45%
Performance Since Ackman Short Presentation: +45%
What's Going On: Bill Ackman famously presented his short thesis on the company in December 2012, calling the company a pyramid scheme and saying he believed the stock would go to $US0. Carl Icahn later bought a whole bunch of Herbalife stock, eventually getting four board seats, and famously tussled with Ackman in an interview on CNBC. More recently, t
he FTC opened an investigation into the company.
What Happens Next: The FTC investigation is probably the make or break moment for the stock. If the FTC finds major issues and begins the process of shutting the company down, Ackman will be proven right. If Herbalife is given the regulatory 'all clear,' the stock will likely run higher and Ackman will be forced to close out his position -- at a massive loss.
Sector: Social Media
Year-to-date Performance: -47%
What's Going On: Twitter went public in November in the most anticipated public offering since Facebook's 2012 debut. The stock priced at $26 per share and the debut went smoothly, basically the exact opposite of Facebook's debut. After the debut, Twitter stock soared to more than $US70, in December, but 2014 has not been friendly to Twitter, with shares losing nearly 50% year-to-date. Twitter shares have tumbled after each of its last two earnings reports, with investors mainly focused on its continued slowing user growth.
What Happens Next: Twitter operates a fantastic social media platform, but its roughly 250 million users pale in comparison with Facebook's more than 1.2 billion users. Twitter shares plunged after a May lockup expiration, which allowed early employees to sell their shares, and right now the company faces an uphill battle against negative investor sentiment. The company will need to show investors it can grow its user base, or turn existing users into more money, to reverse this trend.
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