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.
Aehr Test Systems (NASDAQ:AEHR)
Number of Hedge Fund Holders In Q2 2024: 12
Short Interest % of Shares Outstanding: 17.19
YTD Share Price Loss: 51%
Aehr Test Systems (NASDAQ:AEHR) is a backend semiconductor company that provides wafer, die, and package testing equipment. Its products are used primarily to test silicon carbide wafers, energy storage silicon, and power management chips. Consequently, the firm has faced a tough time in 2024 as broader industrial use cases of semiconductors have slowed down because of weak industrial output. Silicon Carbide products are used extensively in the EV industry, and the slowdown in this sector coupled with little AI exposure has meant that despite being a semiconductor stock, Aehr Test Systems (NASDAQ:AEHR)’s shares are down 51% year to date. The latest sell off was sparked in August after the firm completed an acquisition of a private California company that specializes in testing AI chips. Investors weren’t impressed though, but they did reward Aehr Test Systems (NASDAQ:AEHR) stock with a 5% price gain in September after it announced a new deal for AI chip package testing solutions. However, the stock is yet to retake its high reached when the firm announced the deal on July 16th.
Aehr Test Systems (NASDAQ:AEHR)’s management commented on the acquisition during the Q2 2024 earnings call. Here is what they said:
“I’m personally very excited and proud to announce today our acquisition plans for Incal Technology, a manufacturer of highly acclaimed reliability test and burn-in solutions of a wide range of semiconductor devices and markets.
They have a particularly strong new product family of ultra-high-power test solutions for AI accelerators, graphics and network processors, and high-performance computing processors. Their ultra-high-power package for our test capabilities, combined with Aehr’s industry-leading lineup of wafer-level test and reliability solutions, uniquely position us to fully capitalize on the rapidly growing opportunity within the AI semiconductor market, as a turnkey provider, a reliability and test that spans from engineering to high-volume production. Incal is in a unique position with intimate knowledge and working relationships with a significant number of AI-industry leaders, providing a front row seat to the technology needs of those customers. They’re shipping systems today for use by a broad range of companies with many of these companies projecting needs to move to high volume production level burn-in of these devices.
Both Aehr and Incal believe there’s a tremendous opportunity to grow this business substantially. Incal has world-class system hardware and software architectures and customers that have a high degree of customer loyalty for their products. Aehr brings worldwide sales and support infrastructure, as well as high value manufacturing capacity and capabilities that together we feel will quickly address customer demand of very high global growth rate of AI and other high-power semiconductors. We also bring R&D resources, technology and processes, and the financial resources to be able to enhance and accelerate new needs that customers may ask for. This unique combination strongly positions us to capitalize on the significant opportunity within the AI market.”
Overall AEHR ranks 4th on our list of the worst falling stocks to buy now. While we acknowledge the potential of AEHR 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 AEHR 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.