There and Back Again is the secondary title of J.R.R. Tolkien’s fantasy story The Hobbit. It also describes the feelings of many investors these days.
COVID crashed into the market this spring and appears to be returning for a second round. It’s only natural for investors to worry that the market may plumb its March lows again.
While some concern is warranted, I’m going to flip the pessimistic view on its head and seek stocks that fell hard in the spring but came back again.
I start with the downward journey by looking for stocks in the S&P/TSX Composite that declined more than 50 per cent from the index’s high set on Feb. 20 to its low on March 23.
Only one of the 223 firms still in the S&P/TSX gained ground during the spring crash. The single glimmer of good news came from packaging and tissue products firm Cascades Inc. (CAS-TSX). You’ll recall that tissue products were in high demand in the early weeks of the pandemic and the market rewarded the stock with a one-ply gain of 0.5 per cent – including a reinvested dividend.
The rest of the stocks in the index fell by an average of 40.9 per cent from Feb. 20 to March 23, based on data from S&P Capital IQ. Fully 70 of the 223 stocks in the index fell by more than 50 per cent in the period, including dividends. Energy stocks were particularly hard hit along with airlines, restaurants, financials and the like.
Stocks went down, down to Goblin-town, but I’m interested in those that got back up again. That is, I want to look at stocks that fell by more than 50 per cent in the crash but now have positive total returns since the market’s precrash high.
The accompanying table shows 11 there-and-back-again stocks. It includes performance during the COVID crash and gains from the Feb. 20 market high to Oct. 29. The trailing 12-month price-to-earnings ratio is also provided along with the forward 12-month P/E ratio, which is based on earnings estimates by industry analysts. In both cases, negative ratios are listed as “NM” or not meaningful.
My eye was immediately drawn to Canfor Corp. (CFP-TSX) because I own a few shares of the forest-products firm. Its stock lost more than 50 per cent in the COVID crash, but it has surged since then as people turned to home improvement projects during their confinement.
Go back to 2019, and Canfor had a difficult time. It lost $269.7-million and its stock swooned below $10 a share from its highs near $34 in 2018. The low price attracted a takeover offer of $16 a share from B.C. billionaire Jim Pattison, who already owned a big stake in the firm. But the offer was rejected by minority shareholders in December of 2019.
After that bruising year, Canfor’s shares were in the dumps as they moved into February, but that didn’t stop them from falling another 53.4 per cent during the COVID crash. They hit a 52-week low of $6.11 a share on March 23 as the market bottomed.
But the company returned to profitability in the second quarter of 2020 with earnings of $62.4-million and it hit the jackpot in the third quarter with a profit of $216-million. Investors took note and pushed the stock up to a 52-week high of $19.06 in August.
Canfor currently sports a forward P/E multiple of 4.8 after its shares drifted down to $17 a share, which isn’t far from the price Mr. Pattison offered last year.
Each of the there-and-back-again stocks tell their own interesting stories. Take a look at the list and you’ll find some treasures therein.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
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