Is There Any Hope for 2014’s Biggest Losers?

Talisman Energy Inc. (TSX:TLM)(NYSE:TLM) and Westport Innovations Inc. (TSX:WPT)(Nasdaq:WPRT) are among the stocks that have gotten crushed in 2014. Is a turnaround in sight?

| More on:
The Motley Fool

In 2014, we saw an increasing divergence between stock market winners and losers. In other words, some stocks skyrocketed while others tanked.

Below we take a look at three of 2014’s worst performers, and ask whether any of them are poised for a turnaround.

Penn West Petroleum

This year has been one to forget for Penn West Petroleum Ltd. (TSX: PWT)(NYSE: PWE) and its shareholders. It started off with some asset sales for bargain prices, which management got slammed for. Then came an accounting scandal, which required $400 million worth of restatements. Finally, declining oil prices have taken their toll. As a result, Penn West’s shares are down by 46.8% so far this year.

That being said, Penn West’s share price may draw some bargain hunters. After all, the dividend yields a whopping 11.9%, despite being cut by almost 50% in 2013. Is there any hope for a rebound?

Perhaps, but at this point, the shares are just too risky. The company still has $1.9 billion in debt, about 80% of the company’s market value. And thanks to these asset sales, production is declining – in the most recent quarter, production declined by 25% year-over-year. Another dividend cut is almost certain. And if oil prices continue to decline, things could get much worse. The risk is just too great.

Talisman Energy Inc.

The news hasn’t been any better for Talisman Energy Inc. (TSX: TLM)(NYSE: TLM), whose shares are down by 47.0% in 2014.

Like Penn West, Talisman expanded too quickly during the boom years, and has been trying to scale down ever since. In fact management has been pursuing an outright sale of the company. But there have been some major hurdles.

For one, Talisman has assets in North America, the North Sea, the Middle East, and Asia. This complexity makes the company less appealing to potential acquirers. Making matters worse, the North Sea assets come with big capital commitments, and production is declining.

That being said, Talisman has some slight advantages over Penn West. Its debt (as a percentage of market value) isn’t as high. Production is declining less slowly. And Talisman has the backing of billionaire activist investor Carl Icahn, who holds a 7.3% stake in the company. But like Penn West, Talisman is still a roll of the dice.

Westport Innovations

Shareholders of Westport Innovations Inc. (TSX: WPT)(Nasdaq: WPRT) are wishing they held Penn West or Talisman instead; so far in 2014, Westport’s shares are down by 68.4%. What’s gone wrong for the natural gas engine technology provider?

First of all, gas prices have held up well, while diesel prices have declined. This has made Westport’s technology less competitive against traditional alternatives. And while management has been cutting costs, this may be having an effect on growth. As a result, revenue this year is expected to decline by nearly 20%.

Making matters worse, Westport’s shares were priced very high, based on the assumption that revenue would skyrocket. And the shares still trade for more than three times revenue, a big number for a shrinking company with no profits.

So the best option among these three is likely Talisman – by default. But all of them are very risky, so proceed with caution.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned. The Motley Fool owns shares of Westport Innovations.

More on Energy Stocks

bulb idea thinking
Energy Stocks

This Stock Is Miles Ahead of Its Industry: Is It a Buy Now?

This stock has proven to be well worth the investment, especially at a time with increasing demand for clean energy…

Read more »

Oil pumps against sunset
Energy Stocks

Is Suncor Energy Stock a Buy in 2024? 

Let's dive into whether Suncor Energy (TSX:SU) is a stock that's worth buying in this current environment or if investors…

Read more »

oil tank at night
Energy Stocks

Is CNQ a Buy Before its Upcoming Stock Split?

CNQ stock is a high-dividend TSX energy giant with a growing dividend yield. Is CNQ stock a good buy right…

Read more »

Solar panels and windmills
Energy Stocks

How Brookfield Renewable Stock Gained 40% in a Month

Brookfield Renewable stock (TSX:BEP.UN) surged in share price from a landmark deal and strong earnings, leading to a 40% jump.

Read more »

analyze data
Energy Stocks

Check Out This Soaring Stock, up 469% in 5 Years, With More Gains Likely to Come

If there is perhaps one growth stock that's just taken over in the last five years, it's this monster of…

Read more »

gas station, car, and 24-hour store
Energy Stocks

Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling…

Read more »

Oil pipes in an oil field
Energy Stocks

TSX Energy Sector: Best Stocks to Buy in May 2024

Energy stocks like Suncor are generating massive amounts of cash flows and paying out significant dividends.

Read more »

Man holding magnifying glass over a document
Energy Stocks

Bargain Hunters: Is it Too Late to Buy Enbridge Stock?

Enbridge is up about 10% in recent weeks. Are more gains on the way?

Read more »