If the stock market held the Golden Raspberry award (given to the worst movie of the year), then Higher One Holdings (NYSE: ONE) would win the prize.
Higher One has dubious company: Of the 1,500 companies in those three indices, 47 have fallen at least 25% since the year began.
As we pass the midpoint of the year, it helps to scour this group of broken stocks. Though many of them have intractable problems that will take a while to fix, some of them have the ingredients for an impressive snapback rally. This is a good time to start researching rebound candidates, but it's not yet time to buy them. Instead, follow the "10% rule," which is a phrase coined by my colleague Bob Bogda. The best time to buy these stocks is when they have begun to move higher again, as I discussed in late June.
Here are three stock in the group of losers that I am tracking. When they start to trade higher, it's time to buy.
|1. Aeropostale (NYSE: ARO)|
This isn't simply one of the worst-performing stocks of 2014 -- it's among the worst of the past two years.
A series of poor merchandising decisions, coupled with a deep freeze in spending at teen-focused retailers, has led to a long string of negative same store sales reports, and a $142 million loss in fiscal 2014.
The company's cash balance, which stood at around $350 million in fiscal 2010, has fallen to perilously low levels. And that's a real concern for a retailer that is expected to lose more than $1 a share in fiscal 2015 and fiscal 2016.
First, Aeropostale has received a $150 million capital injection from Sycamore Partners. Sycamore has extensive experience with retailers and now has a seat on the board. Look for every trick in the "retailer's turnaround handbook" to be deployed. Of course, it starts with better merchandising/fashion decisions. It may also help that the coming back-to-school season is shaping up to be much better than the past few seasons. Employment trends are slowly improving and expectations are rising that teens in particular will land a lot more jobs this summer than in past ones.
Still, Aeropostale has to win back the hearts and minds of notoriously fickle teens. So a turnaround is not assured. The game plan: Let shares meander in the $3 to $4 range, as they have done since late May. And get ready to pounce if shares move back above $4.50. That's a sign that retail-focused hedge funds and mutual funds are getting a clearer read on the company's turnaround efforts.
|2. UTI Worldwide (Nasdaq: UTIW)|
The thriving bull market is at distinct odds with actual economic activity around the globe. The amount of trade conducted within regions and cross continents remains below levels seen before the Great Recession.
And many shipping firms, UTI Worldwide included, will tell you that demand for freight services remains weak. UTI provides air freight, ocean freight, customs brokerage and logistics services to a broad array of multinational firms. The company stunned investors in late February with an unexpected quarterly loss and a dim forward outlook. Shares have fallen 40% since the year began.
More than likely, it will be at least a year or two before freight management services start to strengthen noticeably. Still, management is in the middle of a cost-cutting plan that will shave nearly $100 million from overhead. That's why analysts expect earnings per share (EPS) profits to rebound from $0.08 in fiscal 2015 to $0.47 in fiscal 2016 (even though sales are likely to grow just 4% to $4.64 billion). By fiscal 2017, more robust top-line growth should help EPS to keep growing at a solid pace.
|3. CommVault Systems (Nasdaq: CVLT)|
I profiled this network management firm around a month ago and since then, shares... have done nothing. Day after day, shares wobble between $48 and $49, seemingly adrift.
But I remain convinced that the company's efforts to beef up its Salesforce (NYSE: CRM) will put CommVault back on a steady growth trajectory. Yet it doesn't hurt to wait for the eventual breakout, as shares may keep moving sideways for a while longer. I don't expect second-quarter results will serve as a catalyst for upside, but keep monitoring this stock -- when it moves into the low $50s, it'll be time to buy.
Risks to Consider: These stocks are failing to gain traction while the rest of the market power higher. In a market pullback, these shares could break out of their trading range -- to the downside.
Action to Take --> You should always maintain a watchlist of 10 to 15 stocks that have great long-term appeal but are just trading sideways currently. By watching and waiting for the right moment, you can be one of the first to hop on broad as investors start to re-embrace these stocks.