Is It Time to Buy the S&P 500’s 4 Worst-Performing Stocks?

The S&P 500 has posted gains of over 25% so far this year, or more than double the historical average. It’s part of a trend that has gone on since the end of the Great Recession in 2009. If you ignore the sudden plunge the market experienced at the onset of the…

coronavirus pandemic last year, the stock market has been on an incredible years-long tear. The broad market index has quadrupled in value over that time period, turning an investment of $10,000 into one worth over $42,000 today.

While that suggests it’s only a matter of when, not if, the market crashes again, some stocks haven’t participated in the rally this year. In fact, the four worst-performing stocks in the S&P 500 have lost an average of 39% this year. If there is a market downdraft coming, they might have already had all the wind sucked out of their sails, and won’t fall much further.

Of course, we know that a stock can go all the way to zero — so let’s see whether these four stocks are bargains, or should still be avoided at all costs.

Activision Blizzard

It’s actually not surprising that Activision Blizzard (NASDAQ:ATVI) has lost 36% of its value in 2021, as much of the video game industry is down on its heels this year. Zynga has lost a similar percentage, Take-Two Interactive is down 20%, and Electronic Arts is off 13%.

After a massive run-up in 2020 due to everyone taking up video games during the pandemic, the availability of out-of-home entertainment was naturally going to have the industry taking a breather.

Yet Activision has issues all its own to account for its outsized underperformance this year, notably allegations of fostering a hostile work environment, which it is currently being sued for. It’s also spilling over into the performance of some of its top-selling titles, including World of WarcraftDiablo, and Call of Duty.

The legal distractions led to a suspension of any updates to World of Warcraft, while the lead designer and director of Diablo 4 left the company. Activision subsequently settled a separate lawsuit from the Equal Employment Opportunity Commission for $18 million, and CEO Bobby Kotick has been subpoenaed by the SEC, which is investigating workplace discrimination at the game maker.

Needless to say, Activision Blizzard is a bit of a mess these days, but these are issues that can be overcome. Because it owns such a powerful portfolio of games, its current valuation of 15 times next year’s earnings and 16 times the free cash flow it produces makes it attractive, even if still not deeply discounted.

Wall Street sees some 66% upside in its stock after assigning it a consensus $97 per share price target, even if it will require some patience for the video game maker to achieve it.

Citrix Systems

Allowing employees to remotely access their work environments no matter where they are or how they do so was a boon to software provider Citrix Systems (NASDAQ:CTXS) during the pandemic. The problem was that it thought the emergency short-term contracts it extended to its customers at a discounted rate could be converted to longer-term contracts after the crisis passed at a higher rate — but that hasn’t worked out as planned.

As much as telecommuting is still a big deal for many employers, it turns out that many businesses really did just want short-term workarounds and have failed to sign up for longer agreements. Citrix had assured investors the shortfall was a “very isolated item”, only to later admit that the transition to the cloud had not been going as planned. It has since reported revenue and profits far below what was expected.

Companies also value stability, and having an executive succession plan in place so there are no surprises to concern the market. That’s not what happened…


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