2010's Worst-Performing Companies On the S&P 500

Meet the Nine Worst Performers Of The S&P 500, the broadly followed stock market index, that analysts expect will improve next year.  The reasons why they are in the Wall Street dog house may be well-known to some, but what many investors may not realize is the opportunities that they may present.

According to an analysis by 24/7 Wall St., analysts expect the shares of 9 out of the 10 members of the Worst to actually appreciate.  The expected increases can be significant.   Whether the potential risk outweighs the potential reward is up to an individual investor to decide.  There are some issues to consider before deciding whether to “adopt” these mutts for your portfolio.

For instance, stocks are sometimes cheap for a very good reason such as the CEO being under federal investigation or if a competitor is gaining market share at their expense or if customers are being maimed by their main product.  Wall Street conventional wisdom oftentimes is wrong.  That’s what makes it so conventional. Also, remember when someone asks whether a stock can go lower, the answer is always “of course.”

Data for the list below comes from Capital IQ. Share prices are year-to-date as of December 2.

1.) Dean Food Inc.  (NYSE:DF) — Down 59.6%

• Currently trades at about $7.44 with a mean price target of $9.44;
• Bad News:  Last week, Fitch downgraded the debt of the milk producer further into junk territory because of “higher than expected declines in earnings and cash flow and the expectation leverage will remain elevated through 2011,” Dow Jones says;
• Good News:  The stock appears cheap on a number on a number of metrics including price-to-earnings ratio.

2.) Weyerhaeuser Co.  (NYSE:WY) — Down 59.3%

• Currently trades at about $17.21 with a mean price target of $19.62;
• Bad News: The lumber producer is expected to benefit from the housing boom which has not happened yet. Stock is a favorite of short-sellers. UBS recently cut its rating from “buy” to “neutral.”;
• Good News:  Jim Cramer, among others, believes that the sell-off is overdone.  Third Avenue Management has recently added to its position.

3.) Apollo Group Inc.  (NYSE:APOL) — Down 41.6%

• Currently trades at about $38.15 with a mean price target of $49.87;
• Bad News:  The operator of the for-profit University of Phoenix faces heightened regulatory scrutiny.  Earlier this month, the company eliminated 700 jobs at the University of Phoenix. Apollo recently predicted that student enrollment will fall 40%;
• Good News:  For-profit college operators have launched a PR campaign to counter the government crackdown.

Read More: Ethanol Producers On Track For More Tax Credits (ADM, VLO, PEIX).

4.) H&R Block Inc.   (NYSE:HRB)  — Down 40.9%

• Currently trades  at about $12.70 with a mean price target of $18.80.;
• Bad News:   More people continue to prepare their taxes on their own.;
  The company is in a legal battle with the US division of HSBC Holdings PLC  to force the bank to provide the controversial Refund Anticipation Loans;
• Good News:  H&R recently reported better-than-expected quarterly results, a sign that the company’s cost cutting is working. Rival Jackson-Hewitt faces severe financial problems as well.

5.)  AK Steel Holdings Corp.  (NYSE: AKS) — Down 35.2%

• Currently trades at about $14.13 with a mean price target of $13.92
• Bad News: It is the only company on the list with no expected upside surprise.  The reason is obvious. “…a stubbornly reluctant economic recovery and soaring raw material costs will continue to challenge us in the near term,”CEO James L. Wainscott said in the last earnings press release.
• Good News:  Demand for steel should rebound as the economy recovers.

6.) PulteGroup Inc.  (NYSE:PHM) — Down 32.5%

• Currently trades at about $6.82 with a mean price target of  $8.41;
• Bad News:  What else? The housing market continues to be lousy.  Stock is a target of short-sellers.
• Good News:  The company continues to pay down debt.  No one expects the housing crisis to last forever.

7.) Diamond Offshore Drilling Inc. (NYSE: DO) — Down 32.2%

• Currently trades at about $65.21 with a mean price target of $69.52;
• Bad News:  The offshore drilling contractor was hurt by the moratorium after the Gulf Oil Spill that has since been lifted.
• Good News:  Demand for U.S. based oil remains strong in the light of concerns about energy security.  The US rig count recently hit a 23 month high.

8.) SUPERVALU Inc.  (NYSE: SVU) — Down 31.9%

• Currently trades at about $8.68 with a mean price target of $11.09;
• Bad News:  The grocer faces stiff competition from a host of rivals including Walmart.;
• Good News:  Under CEO Craig Herkert, the company has closed underperforming stores and gotten more competitive on pricing; Valuation is compelling, according to some pundits

Read More: US Home Values To Drop $1.7 Trillion in 2010.

9.) Goodyear Tire & Rubber Co.  (NYSE:GT) — Down 30.1%

• Currently trades at about $10.46 with a mean price target of $13.75;
• Bad News:  The tiremaker is being hurt by rising raw material costs. Auto sales are nowhere close to pre-recession levels;
• Good News:  During the last earnings conference call, CEO Rich Kramer sounded an optimistic note: “… We have raised our industry outlook throughout the year in Europe and North America, and in emerging markets, particularly Brazil and China, industry volumes are continuing to grow and have already exceeded volume levels reached before the great recession.”

10.) Office Depot Inc.  (NYSE: ODP)  — Down 27.4%

• Currently  trades at about $5.04 with a mean price target of $5.43;
• Bad News: In October, the company settled SEC charges that the company’s CEO and CFO selectively disclosed information to certain shareholders.  Office Depot did not admit or deny guilt and agreed to pay a $1 million penalty.  The two executives paid $50,000 fines each. without admitting wrongdoing.  A separate SEC investigation is underway into charges that Office Depot inflated earnings from 2006 to 2007;
• Good News:  Maybe one of its larger rivals such as Staples Inc. (NASDAQ:SPLS) will buy the beleaguered retailer one day.

Jonathan Berr