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What are we looking for?

Some market pundits believe the best performing equities of 2021 could be the “dogs,” or worst performers, of 2020. It’s a play on an investment theory; an overreaction combined with tax-loss selling in the prior year could lead to a comeback in the current one. There were a lot of poor performers in 2020 owing to the adverse affects of COVID-19, especially in certain sectors and industries. A new year brings new beginnings, and as a result my associate Allan Meyer and I take a closer look at some of the dogs in the S&P 500 using our investment philosophy focused on safety and value.

The screen

Market capitalization is a safety factor: Larger companies, such as those in the S&P 500, tend to be more liquid while having more stable and diverse business operations. To find our dogs we looked at S&P 500 companies with a 52-week total return of minus 35 per cent or worse. The list is sorted on this metric in ascending order starting with the worst. We used total returns over the past 52 weeks as opposed to calendar year 2020 in order to have current data. We still believe it’s a useful proxy for the general theory.

Dividend yield is the projected annualized dividend divided by the share price. It is another safety measure. Debt-to-equity is our final safety factor; it is the total debt outstanding divided by shareholders’ equity. A lower number is preferred. (An “n/a” indicates a company with negative equity on the balance sheet.)

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We also focus on value – we’re always looking for bargains. Price-to-earnings is the share price divided by the projected earnings per share. It is a valuation metric; the lower the number, the better the value. (An “n/a” represents a name with negative earnings projections, in other words, forecast losses.) Earnings momentum is the change in annualized earnings over the past quarter. A positive number means earnings are growing, which should lead to long-term price appreciation and perhaps dividend hikes. The opposite is true for a negative number.

What we found

TechnipFMC PLC scores well for safety and value. Not only does it have the best earnings momentum but it’s also one of the few names with a positive number in that category. Diamondback Energy Inc., Oneok Inc., and EOG Resources Inc. also look interesting. Diamondback boasts the best value, while Oneok is the highest yielding name. Thematically, the majority of companies have negative earnings momentum and there are several from the energy, hospitality and tourism industries.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

S&P 500 companies with the worst 52-week total returns 

CompanyTickerMkt. Cap. (US$ Bil.)52W Ttl. Rtn. (%)Div. Yld. (%)Debt/Equity (%)P/EEarns. Mom. (%)Recent Close (US$)
Carnival Corp.CCL-N22.0-57.30.045.3n/a-2,835.320.79
Norwegian Cruise LineNCLH-N8.0-56.80.0104.4n/a-565.425.38
Occidental PetroleumOXY-N20.8-56.70.2112.7n/a-38.522.39
TechnipFMC PLCFTI-N5.3-55.04.458.416.330.811.85
United Airlines HoldingsUAL-Q12.8-51.80.0128.5n/a-237.943.89
Marathon Oil Corp.MRO-N6.5-50.71.545.3n/a-76.48.25
HollyFrontier Corp.HFC-N4.6-47.25.041.2742.4-85.728.21
Diamondback Energy Inc.FANG-Q9.4-45.92.540.512.4-17.059.24
American Airlines GroupAAL-Q9.5-45.60.0n/an/a-88.115.76
NOV Inc.NOV-N5.7-45.30.029.2n/a-2.014.75
Royal Caribbean CruisesRCL-N16.4-43.90.087.8n/a-515.172.92
Schlumberger NVSLB-N34.7-43.82.064.428.5-24.124.91
Oneok Inc.OKE-N19.6-43.48.5204.515.1-1.544.17
Apache Corp.APA-Q6.5-43.20.6263.237.612.017.27
Wells Fargo & Co.WFC-N132.5-41.61.2147.115.2-41.432.04
Vornado Realty TrustVNO-N7.4-39.65.5110.0n/a-82.938.56
EOG Resources Inc.EOG-N34.5-38.92.523.923.2-25.059.19
Exxon Mobil Corp.XOM-N202.5-37.27.324.627.4-93.947.89
Simon Property GroupSPG-N30.5-37.05.6956.426.9-18.193.00
Valero Energy Corp.VLO-N23.8-36.66.744.4203.5-97.858.30
ConocoPhillips Co.COP-N48.2-36.43.842.6n/a-101.845.12
Boeing Co.BA-N115.3-35.40.0n/a187.2-38.5204.32

Source: Refinitiv Eikon & Wickham Investment Counsel Inc. 

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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