- Given the recent market sell-off, this article looks at the underperforming stocks that are down more than 50% from their 52-week high.
- Travel and leisure companies have been hard hit, but the recent drawdown in oil prices has led to Energy companies dominating this laggards list.
- A defensive tilt towards stock positioning has produced outperformance in this sell-off.
Monday was a historic day in what has been a growing string of historic trading sessions for the domestic equity market. Only famed sell-offs in 1987 and 2008 saw worst single days in the post-WWII era for the U.S. stock market.
The S&P 500 (NYSEARCA:SPY) hit its all-time high on February 19th. Since that day, the broad market index is down 19%. Within that broad index, however, 42 of the 500 or so constituents are down more than 50%. In the table below, I have listed this underperforming sub-segment of the market in more detail. This list is sorted in order of the stocks with the largest drops from their 52-week high.
Some takeaways from this list:
- It has been just 6 months since the attack on Saudi Arabian oil facilities. Russia remains embroiled in a war in Syria. In between, Iranian General Qasem Soleimani was killed by a strategic U.S. strike. Oil has occasionally spiked on the growing risk of a shooting war. However, it was a different type of war - a price war between oil superpowers Saudi Arabia and Russia - that has had the biggest impact on risky assets. The leadership of the two countries disagree on the path towards curbing a global supply glut amidst weakened global demand related to the virus. Of the 42 companies down 50% from their 52-week high, 20 of those companies are in the Energy (XLE) sector. Combined, those Energy companies make up 55% of the market capitalization on this list. That figure would be even higher if ExxonMobil (XOM) - down 49.9% from its 52-week high - would have been included.
- On the opposite extreme, no Consumer Staples (XLP), Real Estate (XLRE), or Utilities (XLU) companies were included on this laggards list. These more defensive companies, which tend to benefit when interest rates are rallying, have outperformed. Low Volatility stocks (SPLV) have strongly outperformed the broad market and high beta stocks (SPHB) thus far this year.
- The 50%+ drawdown in these stocks has produced some interesting dividend yields. The equal-weighting of the indicated dividend yields of the companies on this list (6.7%) is healthy. Given spread widening in the Energy sector, several of these companies will likely need to right-size their dividend payouts to focus on repairing their balance sheets. Several brick-and-mortar retail companies on this list also will likely need to re-consider how they apportion cash to stakeholders.
- The three cruise line companies - Norwegian (NCLH), Royal Caribbean (RCL), and Carnival (CCL) - are all off more than 60%. They were joined on the list by two airlines - United (UAL) and American (AAL) - both down more than 50%.
- Maybe a silver lining from the list is the limited number of Financials (XLF). Only three financials are on this laggards list. Two insurance companies - Lincoln (LNC) and Unum (UNM) - both negatively impacted by low long-term interest rates and potential credit issues were among the laggards. In the banking sector, only Comerica (CMA) is down more than fifty percent. While credit issues could grow as the economic impact of the virus grows, the banking system is starting from a position of strength, a much different situation than the previous crisis.
- The median stock on this laggards list is trading at 7x trailing earnings. While these low multiples are likely signalling declining earnings, especially in the Energy space, valuations are certainly becoming more compelling after the recent rout.
As Seeking Alpha readers start to sift through the market rubble and look for opportunities, I hope this article provides an interesting screen.
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