We recently compiled a list of 10 Worst Falling Stocks To Buy Now. In this article, we will look at where Compass Minerals International, Inc. (NYSE:CMP) ranks among the 10 worst falling stocks to buy now.
To the new investor, the stock market can appear to be an unpredictable graph that has no inherent logic to its ups and downs. However, this is far from reality as all stock performance is primarily driven by fundamentals, market sentiment, news, large buys or sells, and other factors.
As a result, the astute investor can make money on stocks by trying to predict whether a firm has sizeable catalysts that are not accounted for in the share price. Of course, this is a risky approach, and one that isn’t recommended by Warren Buffett as we covered in 10 Best Stocks For Beginners With Little Money. However, as hindsight is 6/6, looking back into time explains a lot about how firms see their share prices drop.
Diving deeper, one doesn’t have to look far to find stocks that have struggled in the wake of shocking and disappointing fundamental performance. One of the best examples of 2024 is the 12th Best Data Center Stock To Buy According to Jefferies, Citi and Wall Street Analysts. Set up in 1968, the firm has defined the era of personal computing through its processors. Yet, in a world that’s thirsty for chips in 2024, its shares are down by a painful 52% year to date and a stunning 69% since their peak in August of 2000.
So why is this stock falling even though it has $191 billion in total assets, $25 billion in cash and equivalents, and generated $55 billion in trailing twelve month revenue? Well, the answer is simple. During its second quarter of 2024, the firm’s profit dropped by 85% annually as it posted a net loss of $1.6 billion. Its size and scale had enabled the firm to be a dividend paying stock, a fact that had helped it retain some stock value even as troubles started to become evident last year. The current dividend yield is 2.29%, but the dividends will be suspended starting Q4 as part of the firm’s $10 billion cost reduction plan.
Its shares tanked by 30% after the second quarter earnings, and investor pessimism is baked in due to the competitive nature of the semiconductor industry. The chip manufacturer has lost its lead in developing cutting edge semiconductor manufacturing technologies to a Taiwanese rival, and investors are on the sidelines as its own 18A chip process is only expected to lead to revenue in late 2025 and beyond.
Yet, even though a 52% year to date drop is bad, it doesn’t make the firm one of the worst falling stocks right now. When we consider falling stocks with a market capitalization greater than $300 million, one notable example in 2024 is an autonomous driving stock that was a billionaire hedge fund boss’s 4th best long term stock pick as of Q3 2023. The fund had first bought the stock in Q2 2021, and its shares are down by 73% year to date.
This firm manufactures light detection and radar (LiDAR) sensors that are primarily used by autonomous vehicle companies to sense their environment. As has been the case with the chip manufacturer, the firm’s troubles also have to do with its business. However, while the semiconductor industry is robust, the auto industry and particularly the electric vehicle sector have struggled due to high rates depressing prices. For this particular stock, the troubles were evident in February when the shares slipped by 10% after it announced that its biggest customer Volvo was experiencing production delays.
The woes were further exacerbated in April after a BofA note downgraded the shares to Underperform from Neutral and slashed the share price target to $1.20 from $3.50. Its stock tumbled by 16% as the analysts noted that “model launch delays and reduced volume expectations for vehicles expected to adopt LIDAR technology drive a meaningful drop in our volume forecasts.” The final nail in the proverbial coffin came in August after $16.5 million in revenue and $0.18 loss per share missed FactSet analyst estimates of $20.4 million and $0.17 million. The stock dived by another 37% and has been in the dumps since then.
Speaking of the car industry, another falling stock in 2024 was ironically the 11th best performing stock on the NASDAQ exchange in 2023 as of October 2023. The stock had posted a 288% gain by then, and in 2024, the shares are down 78.8% year to date. This firm is a lithium miner, however, it has yet to produce a profit, and operating expenses have increased right when lithium prices are at historically low levels. The lithium industry slowdown has pushed out its profit estimates for the future, and consequently, the shares have suffered.
Our Methodology
To make our list of the worst falling stocks to buy, we ranked the 50 worst performing stocks of 2024 with a market cap greater than $300 million by their short interest as a percentage of shares outstanding. Out of these, the stocks with the highest short interest percentage were selected.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a laptop monitor with stock market prices scrolling up and down.
Compass Minerals International, Inc. (NYSE:CMP)
Number of Hedge Fund Holders In Q2 2024: 24
Short Interest % of Shares Outstanding: 16.17
YTD Share Price Loss: 55.84%
Compass Minerals International, Inc. (NYSE:CMP) is a diversified industrial raw materials company that caters to the needs of the construction, chemical, and agriculture industries. Its poor performance on the market, as evidenced by a 55.84% year to date share price drop is both due to factors out of and in the firm’s control. Compass Minerals International, Inc. (NYSE:CMP) is yet to file its Form 10Q for the second quarter with the SEC, and consequently, it has received default notices from lenders. On the business front, the firm has seen its salt revenue drop due to milder weather, and it has also seen new executive appointments by bringing CFO, COO, and a new Corporate Controller on board. Additionally, Compass Minerals International, Inc. (NYSE:CMP) had decided to pivot to lithium production in 2023, but regulatory concerns forced it to stop. This decision led to a $77 million expense, and woes worsened in 2024 when the Forest Service found fire retardants sold by a Compass Minerals International, Inc. (NYSE:CMP) business caused tanker corrosion. This led to future sales of the chemicals being suspended. The firm is also facing litigation related to the forest business.
Consequently, Cove Street Capital’s commentary for Compass Minerals International, Inc. (NYSE:CMP) was quite hard hitting during the Q2 2024 investor letter:
“We have reset our position in Compass Minerals International, Inc. (NYSE:CMP) to 2.5% from 5%. The valuation being accorded to its two “irreplaceable” U.S. assets in salt and sulfate of potash are worth multiples of the current value of the stock, but weather headwinds have sucked the life out of the equity. Said another way, the company has been idiotically run and managed with a mindset that weather is NOT an issue in agriculture and de-icing salt and that has cost us dearly to date. A 72-year-old Board member has stepped in as CEO with a very obvious mission: reduce costs and sell the company. We again would note the Koch family paying $36 per share for a 17% share in the company, among other unhappy people.”
Overall CMP ranks 6th on our list of the worst falling stocks to buy now. While we acknowledge the potential of CMP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CMP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.