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What are we looking for?

Some market followers believe the best performing equities of 2020 could be the “dogs," or poorest performers, of 2019. It’s a play on an investment theory that a negative overreaction in the prior year could lead to a bounce in the new tax/calendar year. A new year brings new beginnings, and as a result my associate Allan Meyer and I thought we would take a closer look at some of the 2019 dogs in the S&P 500 using our investment philosophy focused on safety and value.

The screen

Market cap is a safety factor; larger companies tend to be more liquid while having more stable and diverse business operations.

To find our dogs, we looked at companies listed in the S&P 500 with a 52-week total return of negative 10 per cent or worse. The list is sorted on this metric, starting with the worst. We used total returns over the past 52 weeks as opposed to calendar 2019 in order to have current data. We still believe our list supports the general theory.

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Dividend yield is the projected annualized dividend divided by the share price. It is another safety measure and our list is limited to dividend payers.

Debt/equity is our final safety factor, it is the total debt outstanding divided by shareholders equity. A lower number is preferred. This implies that all names on the list are not overleveraged – they have enough equity to pay off their debts.

We also focus on value because we’re always looking for a bargain. 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.

Earnings momentum is the change in annualized earnings over the past quarter. A positive number means earnings are increasing, which should lead to long-term price appreciation and perhaps dividend hikes. The opposite is true for a negative number.

What we found

We did not find a standout name on the list, however Gap Inc. and Tapestry Inc. offer the best blend of safety and value. DXC Technology Co. boasts the best value, while Macy’s Inc. is the highest yielding. Thematically, the majority of companies have negative earnings momentum and there are a number from the retail and energy sectors on the list.

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

Some of the worst performers on the S&P from 2019

Company TickerMkt. Cap. (US$ Bil.)52W Ttl. Rtn. (%)Div. Yld. (%)Debt/Equity (%)P/EEarns. Momentum (%)Recent Close (US$)
Macy's Inc.M-N5.4-38.28.773.87.2-5.417.42
Occidental PetroleumOXY-N42.2-28.26.748.440.7-34.647.26
Gap Inc.GPS-N6.7-28.05.435.210.8-7.017.92
DXC Technology Co.DXC-N8.9-27.92.465.05.2-7.834.64
Mosaic Co.MOS-N8.2-25.30.943.618.2-29.121.52
Kraft Heinz Co.KHC-Q38.6-21.15.160.312.30.031.60
Cabot Oil & Gas Corp.COG-N7.1-20.82.358.714.72.117.34
Kohls Corp.KSS-N7.3-19.25.763.310.1-4.546.72
Tapestry Inc.TPR-N7.9-16.14.745.610.3-3.128.56
Concho Resources Inc.CXO-N17.8-14.30.623.221.5-21.588.44
Dupont De NemoursDD-N45.3-14.02.013.414.8-15.161.14
Cimarex Energy Co.XEC-N5.3-13.61.544.79.3-18.051.64
Walgreens Boots AllianceWBA-Q48.2-11.03.471.69.2-1.554.43

Source: 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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