(Author’s note: we’ll be quiet on the deep dive front over the holidays, but please enjoy the second of three year-end pieces. Last week we looked at some of the key trends of 2022. We’ll be back on January 8 with the first of many deep dives in 2023.)

It’s been a difficult year for equity investors. The S&P 500 is off 19.3%; the NASDAQ Composite 32.9%. It’s worth looking back at some of the stocks that, in the context of that broad market weakness, still managed to surprise — or to disappoint.

To be clear, this is not a list solely of the best- and worst-performing stocks of 2022. For instance, the biggest winner in the S&P 500 this year is Occidental Petroleum , which has rallied 120%. Oxy certainly has done some things right, and the 2019 acquisition of Anadarko Petroleum (which tanked OXY at the time) now looks much better in retrospect.

But the core drivers behind OXY’s strong performance aren’t necessarily within its control. The Russian invasion of Ukraine spiked crude prices, and helped change overall sentiment toward energy equities. The halo from continued investments by Berkshire Hathaway helped as well. Those positive attributes have been amplified by the balance sheet, which is leveraged heavily due to Oxy ‘winning’1 the bidding war for Anadarko.

So OXY doesn’t make the cut here. Nor do some of the year’s biggest losers. Among stocks that still have a market cap over $300 million, Carvana has been the worst performer with a 98.25% year-to-date decline. But it’s not as if better execution in 2022 necessarily would have changed the story. The plunge appears driven by a business model that is structurally unable to manage a recessionary environment with normalized interest rates (plus, of course, a market that last year failed to recognize that fact).

No, this list is about performance relative to industry and category. And to the market/economy as a whole. It’s about the stocks that truly impressed in a volatile year — and the ones that disappointed even considering the difficult environment. Let’s start on a happier note.

The Winners

Celsius Holdings

Shares of energy drink manufacturer Celsius Holdings came into this year trading at more than 8x 2022 revenue, and something like 200x trailing twelve-month EBITDA. It was the kind of valuation simply begging to be slashed by a bear market — and, initially, it was. CELH dropped by one-third in the first six trading sessions of the year.

Last week, we highlighted the stunningly quick change in inflation and interest rate expectations that occurred during the first week of 2022. That change likely played a major role in the stock’s decline.

Yet since the close six sessions into the year, CELH is up 115%. All told, the year-to-date gain is 43%.

To be sure, external news hasn’t been entirely unfavorable. A key catalyst for CELH was the August announcement of a distribution agreement with, and $550 million investment from, PepsiCo . That agreement probably only occurred because a similar agreement between privately-held Bang Energy and PepsiCo came to an end. Bang’s erratic CEO — indelibly described as “if Florida was a person” — clearly played a key role in opening the door for Celsius, before his company filed for bankruptcy in October.

Still, Celsius has clearly taken advantage of the opportunity. Revenue has more than doubled year-to-date, and EBITDA margins have expanded despite inflationary pressures.

This increasingly looks like Monster Beverage redux (complete with, at the moment, heavy short interest). Admittedly, given that MNST was, before the pandemic, the best stock of the century, perhaps that level of praise hasn’t quite been earned. Celsius will have to settle for a spot on this list instead.

J. Jill

In our short call on Under Armour earlier this month, we highlighted recent strength in apparel retailers, particularly coming out of fiscal third quarter results. But zooming out to view full-year performance, the news has been much bleaker.

Of the 29 apparel retail stocks (as defined by finviz.com) that are $10 billion or less, just three are positive YTD. The mean decline is 43%; the median 45%.

J. Jill has been far and away the winner of the group, posting a 17% return. Shares in fact touched a three-year high this month before retreating with the rest of the group in recent sessions.

Fundamentally, the rally makes perfect sense. If anything, it appears understated. Like so many of its peers, J. Jill was a pandemic winner in fiscal 2021 (ending January 2022). Same-store sales jumped a sizzling 23%, and Adjusted EBITDA rose 40% on a two-year basis.

Unlike peers, however, the women’s retailer has kept the momentum going here in 2022. YTD, J. Jill has grown comps 6.8% and Adjusted EBITDA is up another 23%.

Back in September, we highlighted Destination XL , a big-and-tall retailer that has posted similarly strong performance in lapping difficult comparisons. At least in the equity market, JILL has done even better. DXLG has returned ‘only’ 13.6%. And despite JILL’s gains and performance, the market remains skeptical. Shares trade at barely 3x EV/EBITDA. While some investors are trying to time a recovery in independent apparel retail, it might be worth instead owning the companies that don’t seem to need a recovery at all.

Box

There’s a fun irony to the 18% gains in Box so far this year. After all, investors spent the pre-pandemic period largely ignoring the stock: BOX entered 2020 trading below the first-day close after its 2015 initial public offering. Box simply wasn't new enough, wasn't growing fast enough.

Here in 2022, meanwhile, they’ve been dumping so many of those software names they bought at elevated valuations, in part because of fears of what those businesses actually look like when they mature. Box has matured — and done so rather nicely.

It’s controlled costs well this year. Excluding share-based compensation, general and administrative expense has declined 16% year-over-year through the first three quarters of the year. Spending on sales and marketing and research and development has increased, but about in line with revenue. As a result, Box has flipped to an operating profit on a GAAP basis, with 5%-plus margins in Q3.

In other words, Box is doing precisely what investors are begging so many software companies to do. Its management team didn’t even need a massive downswing to get the memo.

Super Micro Computer

Of more than 1,900 mid-cap or larger stocks, the 33rd-best performer YTD is Super Micro Computer , a manufacturer of servers and storage. Even more impressive, SMCI is number one of 299 technology stocks.

What’s interesting is that it doesn’t appear that Supermicro (as it’s known) has done anything special. A long turnaround from a 2018 delisting simply has stayed headed in the right direction, allowing the company to dodge the post-pandemic hangover afflicting so many other hardware makers this year. A shift toward being a “solutions” provider as opposed to a product seller is a factor, certainly, but without this kind of performance that shift would sound more like corporate buzz-speak than an actual catalyst.

In this case, however, the impact of the shift is obvious:

source: Super Micro Computer fiscal Q1 presentation

Supermicro quickly has accomplished what the likes of Cisco Systems have spent years trying to do with mixed results. The 87% rally in SMCI so far this year suggests results that are much better than "mixed".

The Losers

Cano Health

Cano Health was atypical for the time when, in November 2020, it announced its plan to go public via a merger with SPAC (special purpose acquisition company) Jaws Acquisition. In the frothy market of Q4 2020, in particular, most SPACs were targeting speculative, buzzy names with little or sometimes zero revenue. Cano, however, was an established provider of primary care services to seniors, with projected 2021 revenue of nearly $1.5 billion.

Yet Cano wound up at the same place as so many companies that went public via the same route at the same time: with a share price barely above $1.

For many of those other de-SPACs, as they’re known, the plunge from the merger price of $10 was almost pre-ordained. As we’ve noted in past commentaries on the group, there were a ridiculous number of ridiculous businesses (nine different lidar developers!) going public at roughly the same time. For CANO, however, the plunge to Friday’s close of $1.07 seems more the result of self-inflicted wounds, particularly in the second half of the year.

The worst part for CANO shareholders is that the company was supposed to be going private at this point. In September, the Wall Street Journal reported that CVS Health and Humana — the latter of which already was a Cano partner — were "circling" the healthcare provider. As the Journal noted, in the preceding three months, two other primary care operators had agreed to sell themselves. The market clearly saw Cano as the logical next domino to fall: CANO doubled in less than eight weeks into and out of the Journal report.

But CVS in fact walked away, as did Humana (the latter perhaps because its interest was only driven by a right of first refusal clause; once CVS exited, Humana likely was happy to maintain the status quo). CANO plunged 42% in a single session in October on dashed M&A hopes, and another 35% after Q3 earnings the following month showed weak revenue from new customers.

It’s probably too aggressive to believe that Cano would be defensive enough to survive the 2022 bear market without some decline. Peer Oak Street Health , for instance, is down 37% year-to-date.

CANO, however, is off 88%. Institutional investors — including Daniel Loeb’s Third Point — are fleeing amid liquidity concerns. It’s possible Cano can right the ship in 2023, but there seems a very real possibility that the poor performance this year will lead to the stock being zeroed next year.

Big Lots

I mean:

source: YCharts

Some readers might dispute the presence of any of these individual peers2 — but that’s kind of the point. After years of BIG being a classic “value play or value trap?” argument, it’s still not entirely clear what Big Lots is supposed to be, or at least what its value proposition is.

Obviously, Big Lots’ core categories are under more pressure than those of other discount retailers. But Big Lots posted a negative comp last year, and is tracking toward a double-digit decline this year. Across the entirety of 2019 to 2022, a period that on net should have been favorable, same-store sales should be barely positive.

That kind of performance isn’t close to good enough, and it goes a long way toward explaining why BIG has been so heavily shorted for so long. It also goes a long way toward explaining why, over the long haul, the shorts keep winning the battle: excluding the worst of the March 2020 lows, BIG this month hit a thirteen-year low.

FTC Solar

This one, however, is worse:

source: YCharts

Solar stocks, as measured by the Invesco Solar ETF , have held up this year. Array Technologies , a manufacturer of tracking systems for solar panels, has gained 30%, in part due to the optimism following the passage of the Build Back Better program in the U.S. Contract manufacturer Flex has rallied 17%, at least in part to its 83% ownership of Array rival NexTracker.

And FTC Solar has lost more than two-thirds of its value, despite being a direct competitor of both Array and NexTracker.

The relative performance of the businesses echoes that of the stocks. Array’s revenue through the first nine months of the year has risen 63% on an organic basis. NexTracker sales are up 28% over the last two quarters (the first half of its fiscal year). FTC, however, has seen its revenue plunge 43% year-to-date — an almost incredible performance, given that the company still is running at a negative gross margin.

The weak performance leads to real solvency concerns. FTC has burned nearly $50 million in cash so far this year, an amount almost exactly equal to the cash remaining on the balance sheet.

Admittedly, a key culprit has been the Uyghur Forced Labor Prevention Act (UFLPA), which has led to massive amounts of solar panels being seized by U.S. authorities. FTC does have a solid backlog which suggests at least the possibility of a rebound.

But rivals are operating under the same pressures, and for its part Array is posting a solidly increased backlog (+36% excluding the boost from an acquisition). It takes more than a single legislative act to explain a stunning 99 percentage points of underperformance against FTC’s most direct peer.

Verizon Communications

In the context of the broad market decline, the 26% decline in Verizon Communications isn't that bad. But this is precisely the environment in which VZ is supposed to hold up better than the market as a whole. It’s precisely why the stock was supposed to be safe.

It simply hasn’t been, and the industry isn't the problem. T-Mobile is up 21%. Even long-time laggard AT&T is in the black when including dividends.

The problem, rather, is execution. Verizon has been hemorrhaging market share in recent quarters, and there’s no sign yet that the company is going to find a bottom. Shares are at a five-year low as a result — at precisely the time the typical Verizon shareholder needed something so much better.

As of this writing, Vince Martin has no positions in any securities mentioned.

Disclaimer: The information in this newsletter is not and should not be construed as investment advice. Overlooked Alpha is for information, entertainment purposes only. Contributors are not registered financial advisors and do not purport to tell or recommend which securities customers should buy or sell for themselves. We strive to provide accurate analysis but mistakes and errors do occur. No warranty is made to the accuracy, completeness or correctness of the information provided. The information in the publication may become outdated and there is no obligation to update any such information. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Contributors may hold or acquire securities covered in this publication, and may purchase or sell such securities at any time, including security positions that are inconsistent or contrary to positions mentioned in this publication, all without prior notice to any of the subscribers to this publication. Investors should make their own decisions regarding the prospects of any company discussed herein based on such investors’ own review of publicly available information and should not rely on the information contained herein.

1

Since the day before its initial bid for Anadarko was announced, OXY has gained 2.6% and provided total returns of 16.5%. The SPDR S&P Oil & Gas Exploration & Production ETF has gained 4.6% with total returns of 13.7%.

2

It seems a stretch to compare Big Lots to either Ross or TJX Companies, but both and are now in the green YTD, so BIG has underperformed that potential peer set as well.

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