2016 was a generally successful year for stock market investors. US markets surged, and most domestic indices hit new all-time highs. The S&P 500 topped 2,200, and the Dow almost tagged 20,000.
But there were some serious sector rotations during the year. This wasn't like, for example, 2013, where the vast majority of stocks traded sharply higher. 2016 had plenty of falling knives, some of which are continuing to plunge yet deeper.
Which, if any, of these will turn it around in 2017? Here's the five biggest large-cap losers on the year (market cap of $10 billion or greater today).
#5 Royal Bank of Scotland (NYSE:RBS)
RBS started the year in swift decline. Shares stabilized, but proceeded to plunge newly following Brexit. RBS stock dropped close to 50% in two weeks. It has reduced its losses slightly over the past month, but still finds itself down 38% on the year.
Notably, this is a far larger loss than, say, Barclays PLC (NYSE:BCS), which is down less than 20% on the year. RBS' ongoing litigation problems are a big part of the reason. Investors don't like the uncertainty of not knowing how large the eventual legal bills will be.
On top of that, RBS managed to fail its stress test, in contrast with most other UK banks.
Sure, you can point to the bank's attractive sub 0.6x price/book ratio. But with its poor profitability ratios, there's a good reason for the sizable book value discount. Given the numerous issues facing the UK, I'd rather stick to stronger banks there, even if the discount isn't as large.
#4 Vertex Pharmaceuticals (NASDAQ:VRTX)
It wasn't a great year for biotechs. And Vertex, being in the rare disease space, was under particular pressure, as pricing pressures weighed on investor sentiment throughout the year.
Vertex put in generally strong earnings results over the course of the year, but lowered guidance going forward. As a company reliant on its blockbuster drug Orkambi, investors are probably going to remain nervous until they're more certain of its forward prospects.
The stock certainly came down a lot in 2016, but this is more due to where it started. It still doesn't look cheap even at today's price. When we talked of biotech bubbles in 2015, it was this sort of thing we had in mind. One plus, as shares continue to drop, odds of a buyout rise.
#3 Perrigo Company (NASDAQ:PRGO)
Shares of Perrigo are down 60% since early 2015 - this year's 43% decline isn't the full extent of the damage. The specialty pharma firm has had all sorts of problems. Having its CEO depart to run cratering Valeant (NYSE:VRX) certainly put the wrong sort of connection in investors' minds.
The company successfully (perhaps the wrong word) avoided a takeover offer from Mylan (NASDAQ:MYL) last year, but has greatly disappointed investors since then. The plunge in the share price has attracted numerous activist investors, who seek to restructure the company to try to unlock value.
However, not all the investors are satisfied. David Einhorn, for example, sold out of the company entirely this past quarter.
There may be value in some of these battered specialty pharma plays. I'm not ready to commit money to the sector yet - let's see how the healthcare landscape shifts after January 20th. But if you've got a strong stomach, you can make a case for this one.
#2 Teva Pharmaceutical (NASDAQ:TEVA)
Generic drugmaker Teva has seen shares plunge 44% on the year. And they're still dropping following an unexpected management team transition. Teva is now trading at levels not seen in a decade; even during the financial crisis, it didn't trade down this low.
Numerous problems are dragging down the stock. An investigation into price-fixing among generic drug makers is a big threat.
And the company's acquisitions have left it seemingly overleveraged. The $30 billion debt load now runs at more than 5x EBITDA. Teva has great free cash flow generation ability, however, so fears about a debt wipeout are probably overblown.
Teva stock could keep dropping. It faces a messy situation at the moment. However, we're probably closer to the bottom than the top for the stock, and it pays a nice dividend while you wait. Of the five biggest large-cap losers of the year, this is my favorite at today's price.
#1 Liberty LiLAC (NASDAQ:LILA)
Even after the recent rally, LILA stock is down 46% for the year. It takes the crown for 2016's biggest large-cap loser.
Liberty LiLAC is one part of John Malone's sprawling empire. Unfortunately for investors, this appears to be a weak link. LiLAC was already having a bad year. But things turned markedly worse in early November when shares dumped more than 20% following a bad earnings report.
The Caribbean/South American telco was slowed down by a hurricane and continuing lackluster economic performance across Latin America.
Many analysts cut their targets significantly for the company, admitting that they'd been way too optimistic on the firm immediately after it was spun out. It seems LiLAC overpaid for its CWC acquisition. While Malone is one of the best investors of our time, even the best can make mistakes.
Given that many people seemed to own this primarily due to Malone's involvement, it could still be a while before shares rebound, particularly if 2017 is as rough for Latin America as it appears it will be.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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