Here’s a look at five of the year’s worst performers so far. I’ll tell you what went wrong, and where I think these stocks are going next.
Rare earth, common problems
Shares of rare-earth miner Molycorp Inc (NYSE:MCP) fell 45% in the first quarter. The astronomic gains of 2009 and early 2010 are long forgotten, and shareholders have lost a stunning 93% of their investment in less than two years.
The company is losing money hand over fist and depends on loans and secondary stock offerings to keep its operations running. Plunging prices for Molycorp’s materials, paired with an ill-timed $1.3 billion acquisition, seem to have doomed the stock.
Molycorp Inc (NYSE:MCP) may return to hypergrowth one day, assuming that the global market for rare earth-powered electronics rebounds. But it has to happen before the company runs out of increasingly desperate cash-raising options. The potential returns could be astronomical, but the risk of going to zero also looms large.
These dynamics make Molycorp Inc (NYSE:MCP) more of a lottery ticket than an investment. Proceed with caution, dear Fool.
Pigs can fly in Cincinnati
Regional telecom Cincinnati Bell Inc. (NYSE:CBB) took a 40.5% steel bath in the first three months, driven by poor earnings and a lack of telecom-like dividend checks.
Unlike many sector peers, Cincinnati Bell Inc. (NYSE:CBB) doesn’t pay a regular dividend. The company has dropped hints that a dividend policy may be in the cards, but investors have yet to see a solid announcement. That’s a huge drag on stocks in this income-friendly industry.
But the company has a few potential tricks up its sleeves. Cincinnati Bell Inc. (NYSE:CBB) owns 69% of data-center operator CyrusOne Inc (NASDAQ:CONE), which it spun out during the first quarter. The wireless division could be sold or spun out for a quick $300 million return. Finally, management is paying down much of its interest-bearing debt these days.
All things considered, fellow Fool Jim Royal sees a strong value in Cincinnati Bell. The risks are outweighed by the potential for a triple in Jim’s eyes, assuming that you can wait two years for all the simmering catalysts to kick in.
This stock may not bounce much in 2013, but long-term investors should be richly rewarded for their patience.
The patent mirage is fading fast
Wireless-security researcher VirnetX Holding Corporation (NYSEMKT:VHC) is another big loser in early 2013, its shares having fallen 35% in three months.
That loss was a major reversal of VirnetX’s legal fortunes. The company has won or settled two major cases in the past two years, pocketing $200 million in the process and awaiting another check for at least $368 million. The Cisco Systems, Inc. (NASDAQ:CSCO) case was supposed to cement VirnetX’s position as an essential patent holder in all things related to network security, but the not-guilty verdict throws cold water over the entire strategy.
Investors are still sitting on a massive 1,600% gain over the past four years, despite the recent drop. The company doesn’t collect any significant license royalties today, covering its daily costs from past courtroom victories. Take that income source away and you don’t have much of a company. The Cisco Systems, Inc. (NASDAQ:CSCO) decision could very well be a sign that this rickety strategy is about to fall apart.
I’d be very nervous owning this stock at valuations like 2,400 times sales and nonexistent earnings. If you rode VirnetX to massive gains in recent years, this would be a good time to take your profits and leave the blackjack table.
The article These 3 Stocks Are Off to a Terrible Start in 2013 originally appeared on Fool.com is written by Anders Bylund.
Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+.The Motley Fool recommends Cisco Systems and owns shares of Cincinnati Bell.
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