Equity markets have been trading up on the year despite aggressive downward moves during the European Sovereign Debt crisis. The S&P 500 Benchmark index has already returned 7.2% over the last year thanks to a strong rally over the last six months in which the index returned 21.4%
Within this positive sentiment there are companies who have not benefited from the general market sentiment and have shown large losses.
In this article I will review the underperformers of the last year and judge the potential for future returns.
Some investors were unfortunate enough to invest in any of these companies (at least $1 billion market capitalization), which drastically underperformed the S&P 500. Perhaps a lucky few actually shorted these stocks to make any positive returns.
This coal producer lost some 70% over the last year. Lower coal prices forced the company to lower its full year 2011 targets. Furthermore it acquired International Coal Group for $3.4 billion last year at peak valuations. To finance the acquisition Arch Coal issues $1.3 billion in new shares, which led to 25% dilution. As a result of the all the bad news CEO Steven Leer will leave the company this month.
The independent oil and gas producer focused on North America saw its shares falling by some 68% over the last 12 months as natural gas prices have fallen by a similar percentage. The developments in shale gas, energy infrastructure and non-perfect substitution characteristics of oil and gas have led to a decoupling of energy prices in the US over the last year. Its board of directors took advantage of the decline in the share price and authorized a $200 million repurchase program.
The coal company with operations in the US and Australia lost 60% of its share price over the last year. The company has operated in a rough environment. Coal prices fell 20% on the year, Australia came with proposals for a carbon emission tax, ArcelorMittal pulled out of its joint $5 billion bid for Australian MacArthur Coal and it was forced to lower its full year 2011 guidance.
The producer of metallurgical coal for the steel industry saw a 56% correction in its share price over the last year. This came after former CEO Calder resigned halfway 2011. While the company reported an 63% increase in revenue over 2011, net profits fell 10% after it suffered from "squeeze" events in Alabama and shipping agreements hurt selling prices and operating results.
This silver producer in Canada and China saw a 50% pullback over the last year. With silver spot prices peaking at $48 in May last year the company share price corrected in tandem with silver prices which now trade at $32 per ounce.
At the same time that silver peaked, Silvercorp's shares peaked as well at $15 per share. While shareholders are undoubtedly unhappy with last year's move, shares still trade at levels of 2010. The company took advantage of the lower share price as its board of directors authorized to repurchase up to 10 million shares.
One thing is for sure. In the next quarter, this list will be totally different. Investors should critically asses their portfolio to prevent ending up with these underperformers in the general bull market.
It is to be noted that all the underperformers are active in energy or raw material markets. Oil prices have been booming which has driven up share prices of oil exploration and production companies. Other industries, notably natural gas, coal and some precious metals producers have fared worse over the last year, as some key energy prices have diverged to record-wide levels.
An investor who does his research can still find value especially in some small- and mid capitalization firms in an attempt to prevent his portfolio from underperforming in this bull market.