The downturn in stocks on Thursday has left few names unscathed. Within the S&P 500, just 23 stocks were in positive territory in late afternoon trading, or just 5 per cent of the index. The usual way to describe such broad declines is that investors ran from risk. And it's true, in a way: Among the 10 subindexes within the S&P 500, the riskier cyclical stocks were hammered far harder than defensive stocks.
But what's interesting is that many of the stocks that show gains are actually higher risk names, with high price-to-earnings ratios and strong one-year share-price gains, and with operations in cyclical sectors.
Here's what we're talking about. Netflix Inc. was up 3.6 per cent, but the stock has a trailing P/E ratio of 67 and a one-year price gain of 179 per cent, even after a recent bout of weakness due to rising competition.
High-end coffee chain Starbucks Corp. was up 9.1 per cent, even though its P/E is 27 and the stock has risen 58 per cent over the past year.
JDS Uniphase was up 0.4 per cent - okay, a slight gain, but one that definitely stands out from the carnage elsewhere in the market. The stock has a bizarre P/E of 424, with a one-year price gain of 85 per cent - and it is still smarting from a sharp 16.7 per cent decline on Wednesday.
Finally, there's J.C. Penney Co. Inc. While its trailing P/E is fairly modest, at 19, the shares have risen 26 per cent over the past year - and as a clothing retailer, this is by no means a defensive stock.
So are investors really retreating from risk? Sure, in most cases. In some cases though, they seem to be embracing it.
David Berman