Going up, Going Down

Corporate America’s biggest winners and losers in 2016 By Timothy Inklebarger | Spring 2017



Some companies won big last year thanks to their growth strategies and sound corporate plans. Others benefited from the promise of a more favorable regulatory atmosphere under a new administration, and for many, it was a matter of being in the right place at the right time.

Then there were the less fortunate. Whether they were on the losing end of a changing political landscape, or struggling in an industry that’s headed the way of the horse and buggy, these companies had to work overtime just to keep their heads above water.

Here, then, are three companies that won big last year and three who lost just as spectacularly.

the fortunate

Nvidia Corporation
ONEOK Inc.
Craft Brew Alliance Inc.

Nvidia Corporation

Nvidia (NASDAQ: NVDA) stock was the stock to own in 2016, with a whopping 340-percent gain for the year, making it the top S&P 500 performer.

The video graphics-processor producer—about two-thirds of its revenue comes from building video-game processing chips—is about more than just creating increasingly realistic virtual worlds for gamers, wrote Dana Blankenhorn for the financial news website InvestorPlace.com. Nvidia’s processing units most notably are now being used in self-driving cars; the company released its Xavier artificial intelligence supercomputer for autonomous vehicles in September, featuring a processor capable of completing 20- trillion operations per second. That super-fast processing power is quick enough to react in advance of whatever is happening on the road, Blankenhorn explained.

The work of so-called “quick-rendering” processors does not, however, end with autonomous vehicles. Nvidia’s explosive growth is actually focused in its data center business—the company provides graphics processing unit (GPU) service for big tech companies like Microsoft, Google, IBM and Amazon. The high-performance GPUs are being used to power artificial intelligence computing and “deep learning” in healthcare, financial analysis, 3D modeling, weather prediction, and more.

“Most of the optimism is over the idea that augmented reality and virtual reality are just going to boom,” Blankenhorn says, adding that gaming is one area that is pushing the envelope. Will Nvidia’s outsized gains continue in 2017? That remains to be seen, but Blankenhorn is quick to point out that the company “leads its markets and those markets are growing.”

ONEOK Inc.

Tulsa, Okla.-based energy company ONEOK Inc. (NYSE: OKE) was another big winner in 2016, seeing a 132-percent gain for the year. That jump in value positioned the company as the second biggest gainer in the S&P 500 in 2016, right behind Nvidia.

ONEOK’s success was due in part to a major rebound in commodities prices. The energy company is already turning heads in 2017 with its early February announcement that it would acquire its outstanding units of common stock from ONEOK Partners, which currently owns 41.2 percent.

The share purchase from ONEOK Partners will make ONEOK “a standalone operating company with a lower cost of funding and stronger cash-flow generation,” says Terry K. Spencer, president and CEO of ONEOK and ONEOK Partners. “Shareholders of ONEOK are expected to benefit from an increased dividend and higher dividend growth rate. We also anticipate the transaction will provide ONEOK enhanced access to the broader capital markets to support and fund future growth.”

That’s music to investors’ ears.

Craft Brew Alliance Inc.

Despite a slump in the craft beer industry, Craft Brew Alliance (NASDAQ: BREW) makers of Red Hook, Widmer Brothers and Kona beers, among others—defied the odds. The company saw its stock more than double last year, experiencing a gain of about 110 percent.

The secret to its success? A combination of operational performance and its partnership with Anheuser-Busch InBev, opined journalist Rich Duprey for financial news website The Motley Fool. According to Duprey, big beer companies “are contracting, not growing, and even the industry’s engine, craft beer, is witnessing a slowdown. Because Anheuser-Busch completed its merger with Miller, gaining control over 70 percent of the US beer market, the industry consolidation should give it pricing power that ought to trickle down to Craft Brew Alliance.”

What’s more, the deal broadens Craft Brew Alliance’s distribution network beyond the typical craft beer company. That said, Duprey points out that Millennials “are promiscuous drinkers. There’s not as much brand loyalty with Millennials in craft beer. They’re looking for the new thing all the time; they jump from one beer to the next.”

the not so fortunate

Sears Holding Corp.
Hertz Global Holdings Inc.
Community Health Systems Inc.

Sears Holding Corp.

Analysts have been predicting the coming demise of Sears Holding Corp. (NASDAQ: SHLD) for years, but if 2016 is any indication, 2017 could be the year the retailer finally goes under.

The Motley Fool contributing writer Daniel B. Kline says the struggling retailer’s restructuring efforts—closing 108 Kmart and 42 Sears stores, mortgaging its assets and selling more of its brands—could be “an exercise in futility.”

“The company could forestall its death by selling off the rest of its house brands, mortgaging its remaining real estate and finding a buyer for the Diehard, Kenmore, Sears Home Services and Sears Auto Centers businesses,” he wrote in late January, noting that even those moves wouldn’t keep the company alive indefinitely— especially when the company continues to face slumping sales.

“They haven’t done anything to show they can make money,” Kline adds. “You can strip the copper wire out of the wall and sell all the fixtures, but that doesn’t matter if there isn’t a business model.”

In a February financial report, Sears said it would focus its efforts on its Sears’ Shop Your Way membership platform. But the online shopping platform has a lot of catching up to do when facing competitors like Amazon and Walmart.

“They are trying to do what everybody is trying to do—use their remaining stores to facilitate online sales,” Kline explains. “That’s not going to work for a brand that doesn’t have a lot of customers.”

Hertz Global Holdings Inc.

Beleaguered rental car company Hertz (NYSE: HTZ) has watched its share price continually drop on weak earnings since mid-2016, and so far that course hasn’t changed.

In an effort to right the ship, the company booted president and CEO John Tague in January in favor of Kathryn V. Marinello, who has served in a number of positions at General Electric (GE) and most recently as senior advisor of asset management firm Ares Management LLC.

Although Hertz had a tough year, you might not count them out just yet—that is, if you trust the judgment of billionaire activist investor Carl Icahn, who reportedly more than doubled his investment in Hertz, increasing his stake to 33.8 percent in November. Icahn lauded the decision in January to appoint Marinello.

“Kathy has a history as a proven CEO and I believe she is the right person to lead Hertz as we move forward,” Icahn said in a Hertz press release, noting her track record in helping save other struggling companies. “Her consistent track record of successes in consumer and financial services, as well as technology businesses, is impressive. She was extremely well-regarded at GE and successfully turned around Ceridian and Stream.”

But, with big companies like Uber and Lyft gobbling up market share, and self-driving cars around the corner, all indications are that Hertz could have a rough time regaining its footing.

Community Health Systems Inc.

Franklin, Tenn.-based Community Health Systems (NYSE: CYH), which runs 158 hospitals in 22 states, underwent a $7.6B merger with Health Management Associates in 2014, making it the largest private hospital operator. Promises of increased shareholder value in the deal, however, never panned out.

Community Health completed a spinoff of 38 of its rural hospitals and its consulting business into Quorum Health Corp. for $1.2B in 2016 to pay down mounting debt, but the struggling company hit another roadblock with President Trump’s promise to repeal and replace the Affordable Care Act (ACA). Community Health Systems ultimately saw its share price drop nearly 75 percent in 2016, making it one of the worst performers of the year, but the healthcare sector has seen a small rebound so far in 2017.

Meanwhile, Community Health continues its damage-control strategy by selling off pieces of its vast network, most recently announcing plans to sell two hospitals in Washington.

“The Yakima and Toppenish hospitals are valued community resources that will benefit from alignment with another regional provider,” Community Health Systems Chairman and CEO Wayne T. Smith said in December. “We are making progress with our strategic objective to divest a number of properties to focus on a more sustainable portfolio of hospitals and networks for the future.”

Where outsized gains and losses will manifest in 2017 remains to be seen. With the political environment changeable on many fronts, however, it’s likely set to remain an unpredictable year.