Here's a challenge: Think of a stock whose price has fallen since the stock market bottomed in March 2009. The S&P 500 has roughly doubled since then, so these are shares that have missed out on a stunning rally.
The tricky part of the challenge is that many companies with only modest profits today have outperformed stronger companies in terms of stock gains over that stretch, because prices for the former were so beaten-down to begin with. Homebuilder Lennar (LEN) has quadrupled in price, despite new home sales hitting a record low pace in March. Winnebago (WGO) has tripled, even though its sales are still more than one-third below peak levels hit several years ago.
Below are three companies that satisfy the challenge. The first two are facing problems that have developed during the stock market recovery. The third, a poster child for turnarounds that never seem to materialize, sells for its lowest price in more than four decades.
The recession was a boon for Corinthian Colleges (COCO), sending unemployed workers looking for ways to boost their educational qualifications. Government perks for students helped, too. Profits for the operator of schools under the names Everest, WyoTech and Heald rose steadily from $7 million in 2007 to $146 million last year. Now the college is facing the possibility of what one Wall Street analyst called "regulatory Armageddon." Critics in Congress say for-profit schools oversold the job prospects their degrees confer and left students buried in debt and lenders at risk for widespread defaults. (The same critics are curiously silent on rising debt levels for graduates of non-profit schools.) Corinthian is caught in what its chief executive calls a Catch-22. Regulators want schools to draw at least 10% of their income from non-federal sources. But Corinthian recently charged about $15,000 a year for many programs, the maximum many low-income students can receive in grants and subsidized loans. To stick within the guideline, it has raised prices, forcing these same students to borrow the difference from Corinthian's in-house loan program. Meanwhile, the company recently reported an 8.9% decline in enrollment, its first year-over-year drop since mid-2007.
Food marketers have figured out ways to charge dearly for commodities like chocolate and even water in recent years. Fresh milk has eluded them. Shoppers want their milk to come from a small dairy nearby, not a national name, which makes branding difficult. And grocers are quick to sell the stuff at a loss, because although shoppers might not know the going price for honey, everyone knows about how much milk should cost. Dean Foods (DF), the nation's largest milk distributor faced those problems before the recovery. Now it must contend with soaring costs for animal feed, which is crimping profit margins for meat and milk. On the bright side, its Horizon organic milk and Silk soy milk are perhaps the two best exceptions to the aforementioned lack of branding, and they remain profitable. Also, with milk prices broadly rising, grocers are no longer competing as fiercely to see who can sell it cheapest. Of the companies listed here, Dean might be the biggest bargain, but it carries a worrisome $4 billion in debt, about eight times its profits from the past three years combined.
Eastman Kodak (EK) has had many turnaround plans over the years, including a shift from camera film to digital cameras, a move into medical imaging and, more recently, an emphasis on printers. None has stopped the stock from falling or the losses from mounting. In a February column I called the company Apple (AAPL) in reverse, noting that just 14 years ago it was more than 10 times as valuable as the Mac-maker. Part of Kodak's newest plan involves figuring out ways to license and charge for its many patents. One Wall Street analyst thinks those could be worth several times the stock's recent price. However, at the rate the company burned cash last year it has four years left before it spends through its current balance.