The S&P 500 is up over 8% year-to-date. But the economy is far from being back in full swing, and that has more than a few companies in deep trouble.
The US banking industry has faced heightened turmoil, with the recent failure of two large banks garnering national headlines. That’s caused every banking stock to come under the microscope, and it has caused many investors to look elsewhere for opportunities.
Retailers have also been under pressure, especially brick-and-mortar-based companies who were struggling to compete in the digital world. Party City and Bed, Bath, and Beyond have both declared bankruptcy this year, fueling speculation on which retailer will fall next.
Even tech companies are struggling, as the weak economy has caused consumers to take a hard look at their expenses and cut back on software costs and subscriptions. Advertising streams have been barely able to compensate for the loss of users tech companies have faced.
So what stocks are failing right now?
Snap, Inc. (SNAP)
Snap Inc. is a technology and social media company that’s best known for its Snapchat app. The visual messenger software was once at the top of the heap, but competition has been stiff ever since.
Younger users in particular have flocked to TikTok, leaving Snapchat out of fashion. Facebook and Instagram have a much larger footprint than Snapchat and have leveraged their brands to steal some of SNAP’s market share.
As the company fell out of favor with users, it fell out of favor with investors. Over the past 52 weeks, SNAP shares have plummeted by almost 67%. After the company released its first quarter of 2023 earnings, SNAP dropped over 20% when the company underperformed on expectations for revenues and total users.
Even though SNAP’s user decline wasn’t dramatic compared to its competitors, it’s all the company has. Facebook and Google have been able to compensate for stagnation in user growth through alternative commercial channels. SNAP doesn’t have that luxury yet.
The company has tried to leverage its platform by adding Snapchat+, a premium subscription offering with around 3 million current subscribers. SNAP also hopes to leverage new AI software based on ChatGPT and to enter the Augmented Reality market.
But given the lack of ad revenue and the declining popularity of the company’s flagship software, it’s hard to be bullish on SNAP.
Kohls Corporation (KSS)
Kohl’s is a brick-and-mortar retailer that runs over 1,100 stores and Kohls.com. The department store chain sells apparel, shoes, home goods, accessories, and more. In addition to major national brands, the company has a stable of its own brands on its shelves.
KSS shares are down around 62% over the last 52 weeks, without much hope for an upturn. In the fourth quarter of 2022, the company reported a year-over-year 7% decrease in net sales. That’s in line with the general sales decline the company faced all last year.
Customers have continued to migrate to online shopping, and Kohls.com hasn’t been able to make significant inroads there. The logistics issues caused in the last few years had a significant effect, but the company pulled through. Unfortunately, the weak economy means customers are shopping and spending less.
These woes sparked a transition in leadership for the company late in 2022, a change that many investors considered to be positive. In March of this year, news that the new leadership bought significant chunks of KSS stock sent shares on a brief increase.
Given the hope that the new leadership will be able to right the ship and the stock’s discounted price, some investors have taken the plunge on KSS. But Kohl’s is a company with multiple significant challenges, so prudent investors should use caution.
Western Alliance Bancorporation (WAL)
Western Alliance Bancorporation is a holding company that owns multiple banking institutions, chief among them being the Western Alliance Bank. The company also owns several related financial institutions and an insurance company.
WAL shares are down around 65% over the last 12 months, due in large part to turmoil in the banking sector. Given the recent failures of the Silicon Valley Bank (SVB) and First Republic, many have speculated that Western Alliance Bank could be the next to fail.
That fear drove some customers to pull their money out of the bank, and some investors to pull their money out of the stock. But Western Alliance Bank isn’t SVB. SVB failed because of maturity mismatches; management was guilty of betting all the eggs in one basket.
In its first quarter of 2023 earnings report, Western Alliance Bancorporation was able to quell some fears by proving that only around 15% of the bank’s investments were in tech companies. Even if Western Alliance’s net income and earnings per share were down from last year, the bank is unlikely to collapse any time soon.
That has caused many investors to reconsider the stock, but WAL is still highly volatile. Shares plunged recently on what was later reported to be a false claim that the bank was looking for a buyer. At this point, only high-risk investors should put their money into a stock that’s facing this much heat.
What Stocks Are Falling: Future Outlook
When times are hard, prudent investors will always look for stocks that are selling at a discount. But it’s critical to do your due diligence because many times stocks are down for a reason.
SNAP was a very popular social media app that has seen its value decline. Given the lack of user growth and the lack of ad revenue, it’s hard to believe that the company will be a solid long-term investment.
KSS is a brick-and-mortar retailer that has had to deal with supply chain issues and shifting customer preference for online shopping. While the company has been under fire, there is some hope that the new leadership will be able to carve out a niche for the retailer. Right now, it’s too early to bet on that success.
WAL is a bank stock that’s under major pressure due to a tumultuous industry. The company has some solid fundamentals and it’s possible that WAL has gotten a raw deal. In the long term, the stock may pay off. But given the short-term volatility, it’s hard to invest right now.
All three of these failing stocks have suffered over 60% losses over the last 52 weeks and, given the tough economy, they all face a hard road ahead.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.