9 of the Worst Investments of 2020 for Careful Investors
Because of the once-in-a-century pandemic that is the novel coronavirus outbreak, many if not most people believed that during the onset of the crisis, this catastrophe would spell doom for the equities sector. However, thanks to the unforeseen (and largely successful) transition to working from home, many stocks enjoyed remarkable gains. However, several others represented the worst investments of 2020.
Naturally, it’s easy to get caught up in the euphoria. When millions of white-collar employees were sent home, their purchasing power remained intact – only their work environment changed. This caused a huge lift in market participation, with the Wall Street Journal reporting that many began fueling their Gordon Gekko fantasies. Sure enough, some of the new participants were successful in their endeavors.
Therefore, the narrative regarding the worst investments of 2020 doesn’t quite attract eyeballs. After all, the Nasdaq Composite index gained nearly 43% last year. But that statistic obfuscates the reality that outside the world of technology, the pandemic created a mixture of winners and losers. For instance, the venerable Dow Jones Industrial Average moved higher by just under 7%.
Interestingly, it may have been conservative investors that were caught out the most by the worst investments of 2020. Before the pandemic, market participation skewed toward the older and more affluent demographic. They were likely to invest in companies that they were familiar with. In turn, younger investors were more familiar with tech names, which explains their dramatic rise during Covid-19.
Now, there’s a question about the viability of the overall market. While it’s great that technology has jumped higher, one sector alone probably can’t carry the entire economy. Therefore, we should analyze the companies that incurred the most red ink and see if we can’t decipher any clues about the new year. Here are some of the worst investments of 2020.
Before we get into it, I’d like to make one thing clear: this is not meant to be a hit job on the included companies. Rather, I’ve included a diverse selection of companies that badly underperformed, per information provided by Barchart.com. Therefore, don’t take this personally as we explore the worst investments of 2020.
New Residential Investment (NRZ)
I can understand why New Residential Investment appealed to conservative investors prior to the coronavirus pandemic. According to the company’s website, it offers a diversified and “hard-to-replicate portfolio.” Further, with New Residential’s acquisition of Shellpoint Partners, NRZ stock became levered to several ancillary businesses, including title insurance and appraisal management.
Unfortunately, New Residential became one of the worst investments of 2020. Again, I say that without casting aspersions on NRZ stock. If it weren’t for the coronavirus, shares may have been one of last year’s winners. I justify that statement because NRZ performed very well between the tail end of the third quarter of 2019 to mid-February of 2020. Likely, this sentiment boost was tied to cooling tensions between the U.S. and China.
Of course, tensions escalated because Covid-19 originated from Wuhan, China. Suddenly, anti-China sentiment reached historical highs throughout the world. Combined with the economic devastation, NRZ sadly succumbed to its inclusion of the worst investments of 2020, down 38.4% last year.
But will it recover in the new year? I have my doubts as the personal saving rate suggests an extremely deflationary environment is at play.
Spirit Airlines (SAVE)
In the recent years prior to the pandemic, airliners generally moved higher albeit in a choppy fashion. Because of this, many conservative investors saw an opportunity with Spirit Airlines in Q3 2019. With rumors that the U.S. and China were getting closer to a trade deal, this created optimism for economic stability. Further, President Trump oversaw a tremendous lift in the labor market, which benefitted SAVE stock.
As one of the low-price leaders in the air travel industry, record low unemployment for everyone meant more people to take advantage of cheaper fares. Of course, the Covid-19 pandemic turned a bright thesis into one of the worst investments of 2020. With people fearful of being infected with the mysterious virus, demand for all airliners plummeted at the onset of the crisis.
But with travel demand returning, is now a good time to consider the contrarian move on SAVE stock? Although it’s true that we did see encouraging numbers for air travel during the holidays, we’re still talking about a roughly 50% haircut from last year. As well, the increased travel raises the risk factor of post-holiday infections. Thus, I’d still be cautious about SAVE.
I can’t quite claim to be a beauty expert. However, it’s possible that careful investors may have bought some shares of Coty when it apparently hit a bottom in December 2018. At the time, COTY stock was trading for a little over $6. But before it began its multi-year descent, it was near $30.
Well, what may have been a turnaround year for COTY stock – shares noticeably jumped higher in early February of last year – turned into one of the worst investments of 2020. With brick-and-mortar retailers suffering a major blow for obvious reasons, health and beauty products were among the hardest-hit subsegments. With contactless services suddenly becoming in fashion, companies like Coty found themselves scrambling for answers.
Some of that came in the form of a divestment to private equity firm KKR & Co. Under the deal valued at $4.3 billion, Coty “agreed to sell a majority stake in its professional beauty and retail hair businesses, including Wella and Clairol brands.” This boosted Coty’s cash holdings by around $3 billion.
Will that be enough moving forward? As I said earlier, we’re in a deflationary environment, which presently doesn’t favor names like COTY.
Brookdale Senior Living (BKD)
Brookdale Senior Living hits close to home. No, I’m not planning on being one of its residents. However, I did mention BKD stock as a one of the more viable stocks to buy because of demographic realities. As various resources, including Pew Research have pointed out, baby boomers are retiring at an aggressive rate. Because of the post-World War II population boom, such a dynamic was inevitable.
Thus, before the Covid-19 crisis, BKD stock appeared a no-brainer wager. Unfortunately, the SARS-CoV-2 virus had a thing or two to say about this bullish thesis. When the carnage was over – at least in terms of 2020 – Brookdale became one of the worst investments of 2020, with shares ending up losing nearly 39% of value.
There were myriad factors at play for the sudden twist of fate. Primarily, the pandemic deeply affected Brookdale’s key demographic. Furthermore, it’s unclear whether the disrupted economy affected potential clients.
However, once we get out of this crisis, BKD is a name to watch carefully. Frankly, its demographic catalyst is too powerful to ignore.
Exxon Mobil (XOM)
With the rise of electric vehicles, many have declared that the days of big oil is coming to an end. And that was before the coronavirus left a wake of destruction. Today, Exxon Mobil finds itself as one of the worst investments of 2020, with XOM stock shedding over 41% last year.
This must have hurt the careful investor, particularly the older demographic. According to the website WhoOwnsBigOil.com:
If you’re wondering who owns “Big Oil,” chances are good the answer is “you.” If you have a mutual fund account, and 59 million U.S. households do, there’s a good chance it invests in oil and natural gas stocks. If you have an IRA or personal retirement account, and 46 million U.S. households do, there’s a good chance it invests in energy stocks. If you have a pension plan, and 61 million U.S. households do, odds are it invests in oil and natural gas.
Moving forward, it might not be a terrible idea to consider a speculative position in XOM stock or similar names. While I appreciate the EV angle, they only make up a fraction of new car sales. Further, global infrastructures are not as fleshed out as they are here in the U.S. Thus, big oil may be relevant for decades to come.
RR Donnelley & Sons (RRD)
You might not necessarily recognize the name RR Donnelley & Sons. However, you’re most likely familiar with its work. As an integrated communications company specializing in marketing and business services, RRD stock is directly tied to retail sentiment through its divisions like commercial printing. But because of this, you can also see why RR Donnelley became one of the worst investments of 2020.
Out of nowhere, what should have been a strong year for retail – remember, under the first three years of the Trump administration, we enjoyed a stock and labor market – suddenly became possibly the worst in American history. Sure, we can’t ignore the Great Depression. However, back then, we had just under 123 million people. Today, we’ve almost tripled that figure.
To be sure, there’s no shortage of bad news impacting RRD stock. But at the same time, Covid-19 may have some upside opportunities for RR Donnelley. Primarily, retailers have needed signage to provide consumer guidance to accommodate new normal protocols. Still, you want to be careful as the addressable market may have dwindled badly for RRD.
Wells Fargo (WFC)
Typically, big banks are economic bellwethers. If sentiment is truly positive, this rarefied financial segment will likely rise. Basically, this is where the economic rubber meets the road. Sure enough, as tensions between the U.S. and China began cooling off starting around the fall season of 2019, the big banks, including disgraced Wells Fargo, enjoyed conspicuous upside.
Of course, once the pandemic struck, WFC stock hemorrhaged badly. Though it began a recovery effort, especially following the election results, Wells Fargo was easily one of the worst investments of 2020, shedding 43.5% last year.
Further, I’m certain that at least some careful investors decided to take a risk with WFC stock. Yes, the underlying company was embarrassed from the account fraud scandal. But time has a tendency of making people forget. Therefore, Wells Fargo seemed like a smart contrarian gamble.
But what about in 2021? Unfortunately, I’m not getting a good read on Wells or the other big banks and it has to do with deflation. As a confirming example, the delinquency rate on credit card loans plummeted to record lows in recorded history during Q3 of last year. That might be good news but it’s not – people are spending less.
Deflation is not good for economic growth and I can’t imagine it being great for WFC.
Over the last few years not including 2020, the cruise ship industry has been all over the map. However, with trade tensions easing, this initially boded well for Carnival and CCL stock. As well, the industry attracts baby boomers. With so many of them retiring at a rapid clip, it appeared that the revenue pathway for Carnival was bright.
Unfortunately, the Covid-19 crisis hit the cruise liner industry in the worst way possible. Indeed, it was a cruise ship that became the public face of the coronavirus. And that really hit CCL stock and its ilk like a freight train. I mean, let’s be honest – even in the best of circumstances, cruise ships are giant floating Petri dishes.
With a pandemic striking passengers dead one by one? Even if you’re not among the most at-risk groups, I believe the answer for most is, no thanks!
Eventually, though, you’d think that every industry will recover from this crisis. True, but some sectors may recover much faster than others. Research into the 1918 influenza pandemic revealed a deterioration in social trust. That will probably be a dark cloud over the travel industry for many years to come.
Fly Leasing (FLY)
Speaking of dark clouds, the other sector that’s traveling through them is naturally the commercial jetliner business. But Fly Leasing had the makings of the ultimate contrarian bet. Specializing in long-term operating lease contracts with various airliners across the globe, FLY stock was tied to a viable service: airliners didn’t want the baggage of expensive fleet purchases.
However, the flexibility of Fly Leasing’s business didn’t do much from an annual performance perspective. Last year, FLY stock dropped nearly 50%, easily one of the worst investments of 2020. Though airliners did need to keep flying, so many had to make disheartening cuts to flights and staff.
But as I mentioned earlier, air travel sentiment has improved from months ago. Will this catalyze a resurgence in FLY and other jetliner-related businesses in 2021? Personally, I anticipate that at earliest, 2022 will be the year when the industry can start thinking about returning to normal.
Beyond the degradation of social trust, countries might impose vaccination requirements, which is a real bummer for convenient traveling. Plus, a possible recession could negatively affect consumer demand.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.