The holiday season is approaching fast, meaning Santa Claus is busy making his list and checking it twice. In the spirit of the season, we at The Fiscal Times offer Santa our help in the form of a short list of companies with the kind of reward that their 2012 market performance warrants. In some cases, that’s a stocking stuffed with chocolate, juicy mandarin oranges, silver dollars and other goodies; in others, nothing but some lumps of coal.
Before we get to our list, we should note that a few companies fall into neither the naughty or nice camp – or perhaps both. For instance, in many respects Apple (AAPL) has had an excellent year, rolling out new versions of its iPhone and iPad and introducing a new, smaller iPad, as well as fighting off Samsung’s threat to its patents. But the Android operating system continues to nibble away at Apple’s dominance, and investors have driven the share price down so much recently that Apple can’t qualify for any of our rewards this Christmas.
But there are other examples of companies whose management have taken particularly intelligent or foolish decisions over the course of 2012 that deserve to be recognized – or named (yet again) and shamed. Each of these companies should be at or close to the top of Santa’s two lists.
Naughty: Facebook (NASDAQ: FB)
Perhaps the most obvious candidate for a lump of coal is the social networking company whose IPO was bungled so badly. True, the immediate fault can be traced to the deal’s underwriters and to the exchange that was ill-prepared for the frenzied attempts on the part of investors to transact trades, but the company played a role, too. Had it not acceded to an IPO price that clearly was very richly priced, with no room for error, a stumble wouldn’t have had such a negative impact on the share price and the news of a disappointing initial earnings release wouldn’t have been as devastating. Even after a strong bounce in recent weeks, the stock remains 26 percent below the IPO price.
Nice: Michael Kors Holdings (NYSE: KORS)
Other high-end retailers have shown signs of faltering revenues or sales levels, but not Michael Kors, which went public almost exactly one year ago. It has rolled out new boutiques within larger department stores, and benefitted from increased recognition of the company’s brand name. Revenue was up 74 percent, as of the end of its fiscal second quarter in late September, while earnings doubled. In contrast to Facebook, here is an IPO that under-promised and over-delivered. Shares are up 87 percent this year.
Naughty: J.C. Penney (NYSE: JCP)
The idea of “store in store” boutiques may be working for Michael Kors, but as a part of the overhaul plan by J.C. Penney’s new management team, they appear to be a dismal failure. Shoppers are staying away in droves, left disaffected by the lack of bargains, and the company has even had to suspend its dividend to preserve cash. The stock has lost 45 percent in 2012. That earns the beleaguered retailer a few lumps of coal right there.
Nice: The Gap (NYSE: GPS)
A year ago, Gap was a drag on the retailing industry; this year, thanks to being on target with trends like colored denim and “Mad Men” fashion looks at its Banana Republic stores, it ranks among retailing’s big winners. Better still, the company’s management seems to have a grip on what had been a pesky inventory problem. Those fixes have made the stock fashionable again, driving it 72 percent higher.
Naughty: Chesapeake Energy (NYSE: CHK)
Chesapeake Energy has not only lost 23 percent so far this year, but it courted controversy and gave investors headaches with some fairly major governance missteps along the way. Chesapeake may have been named one of the best companies to work for in America, but it didn’t have to prove it deserves that title by giving its founder and CEO Aubrey McClendon unusual financial perks. The SEC has been looking into McClendon’s special deals. Admittedly, the company has made progress with asset sales, but not rapidly enough, and capital spending still outstripped revenue in the third quarter.
Nice: PulteGroup (NYSE: PHM)
The homebuilder is buying back $1 billion or so of its debt, just the latest piece of good news from this beneficiary of the housing market rally that has lifted the entire industry. Earnings are coming in higher than expected, and the company reported more closings on new home purchases and higher sales prices on those homes for the third quarter. The company clearly seems to have navigated the financial crisis and the real estate debacle that accompanied it, and the market has rewarded it with a 161 percent gain.
Naughty: Knight Capital (NYSE: KCG)
Another big piece of coal goes to Knight, once a powerful Wall Street trading firm that was brought to its knees this year when one of its trading programs ran amok and cost the firm $461.1 million in losses. The only question now is which of the rival bidders will end up acquiring the rights to Knight as the company approaches the end of its independent life.
Knight isn’t the only one of this year’s crop of losers that likely won’t survive as independent companies until this time next year. JC Penney’s future may be in doubt, absent a restructuring under the protection of a bankruptcy court. It remains to be seen whether the advent of the BlackBerry 10 in January will be enough to save Research in Motion (RIMM) from a dire fate, though the company hasn’t done much to make the “nice” list this year. And Best Buy (BBY) is facing an impossible tradeoff: Watch its sales vanish to online competitors, or come close to wiping out its margins in order to hang on to market share.
While the stock market seems likely to end the year with a respectable if not awe-inspiring gain – barring any last-minute shocks – it has been anything but a tranquil year, and outperforming has required the kind of smart execution on the part of financial managers that is hard to find at the best of times. Nor are there many signs that headwinds will turn to tailwinds in the new year. That Grinch-like market environment makes the solid gains achieved by some companies all the more impressive, even if it doesn’t excuse the missteps made by others.