Best and worst shares of 2019 that could be due a reversal

Best and Worst Performing Shares of 2019 Due A Reversion

We are well and truly into the New Year now and whilst markets remain relatively sedate, we have an opportunity to look back and take stock of 2019, to discover what last year may be able to tell us about our portfolio selections for the year ahead. The idea of having a postmortem of 2019’s trading is to see if we can uncover any hidden gems, stocks that were hard hit in the last 12 months and which may, therefore, be on the recovery trail in 2020.

Conversely, we can also look at the outperformers of 2019 and try to determine which, if any of these, have flown too close to the sun.

For the purposes of this article we will look at the constituents of the UK FTSE 350 index, but the analysis could work just as well on another group of stocks.

Worst Performing Stocks of 2019

Performance Data from Digital Look

FTSE 350 2019 losers
Name30 Day Chg3 Mth Chg6 Mth Chg1 Year Chg
Galliford Try-79.07%-73.95%-74.35%-77.67%
Sirius Minerals56.00%48.92%-63.27%-75.14%
Tullow Oil21.21%-72.57%-73.57%-72.46%
Aston Martin Lagonda-28.83%-6.43%-58.97%-68.52%
NMC Health-47.93%-46.65%-42.64%-55.72%
Plus500 Ltd (DI)4.77%15.06%42.64%-39.92%
IP Group7.03%16.32%-5.63%-38.53%
Micro Focus International5.80%5.98%-43.78%-38.20%
Pearson0.16%-9.58%-24.98%-37.85%
Wood Group (John)13.90%14.11%-22.09%-36.98%
Provident Financial1.09%9.76%6.83%-35.44%
Barr (A.G.)-6.02%-2.21%-38.97%-33.62%
Centrica10.92%30.59%1.19%-32.06%
Fresnillo13.85%-5.71%-29.11%-31.50%
Petrofac Ltd.0.49%-0.56%-5.27%-29.41%
Cineworld Group-2.54%-3.58%-20.51%-26.71%
Marks & Spencer Group-4.17%20.68%-5.72%-25.53%
Ferrexpo4.74%3.34%-41.66%-25.42%
TUI AG Reg Shs (DI)-0.51%3.99%22.05%-22.34%

The table above captures those stocks in the FTSE 350 that fell by more than -20% over the course of the last year and it also shows us their performance over three shorter term metrics from 6 months down to 30 days.

The stock that sits second in our table is Sirius Minerals, which had a torrid 2019. The company was forced to abandon a US$500 million fundraising, due to market conditions over the summer months.

The inability to raise additional working capital called the viability of the company’s Potash mine, in Yorkshire, into question and unsurprisingly its shares collapsed. Falling by more than -60% in the second half of the year, making it one of the biggest losers in the top 350 over that timescale.

However, Sirius Minerals is a prime example of the type of stock that this style of performance analysis is looking for. In that it was a growth stock prior to the failed fundraising and without that additional capital the prospects for growth became very limited indeed.

But at the same time, so sharp was the fall in the share price and the market cap of the company, that it effectively became a value stock. That it is the market cap did not properly reflect the value of the company’s assets, in this case the Potash mine.

As we can see in the table above, in the final quarter of 2019, the market woke up to the fact that the company was a possible bid target, and the stock rallied by +48% in the last few months of 2019.

That optimism seems to have been well-founded as earlier this week mining giant Anglo American announced that it was in advanced talks to acquire Sirius Minerals for £386 million. The stock rallied a further +46% as a result of that news.

Anglo American said that “it had identified the Sirius project as a “tier one” asset” and “a large scale, long-life, high margin deposit.”

We might well conclude then that value, not beauty, is in the eye of the beholder. Perhaps rather ironically Sirius is also the name of the dog star, the brightest star in the sky. A dog of the FTSE 350 in 2019 has become one first stars of 2020.

Our second table is a subset of the 2019 losers table above. In this instance we have looked at performance over three shorter-term time frames trying to identify stocks which are showing signs of positive or upward momentum.

Once again, we have an example towards the top of the table, in this case builder Galliford Try. Which has been among the biggest losers, across most of our performance metrics.

However, a trading update from the company this morning shows that company’s decision to exit large scale house building and focus solely on smaller projects may be paying dividends. It’s early days of course for the new direction, for both the company and its shares which were up by +10.27% at the time of writing.

Performance Data from Digital Look

NameToday Chg7 Day Chg30 Day Chg
Galliford Try10.27%-82.07%-79.07%
Sirius Minerals-0.72%50.63%56.00%
Tullow Oil-4.16%-7.27%21.21%
Aston Martin Lagonda0.20%-25.27%-28.83%
NMC Health5.01%-24.69%-47.93%
Plus500 Ltd (DI)-0.20%1.63%4.77%
IP Group-2.90%-10.67%7.03%
Micro Focus International0.63%0.47%5.80%
Pearson-0.19%-2.43%0.16%
Wood Group (John)0.16%-3.49%13.90%
Provident Financial-0.26%-8.36%1.09%
Barr (A.G.)-6.35%-8.61%-6.02%
Centrica0.66%-1.51%10.92%
Fresnillo-1.68%-1.99%13.85%
Petrofac Ltd.0.65%1.44%0.49%
Cineworld Group-1.33%-5.73%-2.54%
Marks & Spencer Group-9.52%-8.38%-4.17%
Ferrexpo-3.13%-5.90%4.74%
TUI AG Reg Shs (DI)1.12%-5.39%-0.51%

2019 laggards that could be due a recovery in 2020

However, we need to be aware that this is not a clear-cut example of a recovery in a distressed equity. That’s because Galliford has disposed of its Linden Homes subsidiary, selling it to rivals Bovis. Galliford try shareholders received just over 0.537 Bovis shares for each Galliford share they held as a result. The deal was only recently concluded and some of the shorter-term price fall in Gulliford’s shares reflects that corporate action.

This is a reminder that looking at performance data on its own is not enough and that we need to be aware of the background story when making this kind of analysis.

We have highlighted four other stocks, in blue, in the table above, that have shown signs of recovery. NMC Health, Microfocus and Centrica have all shown some signs of recent upward momentum and may therefore be worth keeping an eye on from here.

2019 top performers that could be heading for a fall

Table three, shown below, highlights the best performing stocks within the FTSE 350 during 2019. Many of these could be categorised as growth stocks and a prime example of this can be found at the top of the table, in the shape of Future (once known as Future Media) this business has been growing both organically and through acquisitions.

Performance Data from Digital Look

FTSE 350 2019 Winners
Name30 Day Chg3 Mth Chg6 Mth Chg1 Year Chg
Future2.29%19.13%58.41%177.52%
Pets at Home Group2.91%31.49%42.95%124.98%
JD Sports Fashion0.92%11.07%34.06%104.95%
IWG9.72%11.83%29.02%102.10%
Games Workshop Group12.54%40.18%31.02%98.13%
Aveva Group6.68%30.20%22.55%87.41%
Kainos Group19.87%71.17%18.35%87.00%
Rank Group8.85%45.12%77.96%85.27%
London Stock Exchange13.27%6.24%35.61%83.42%
Spirent Communications-2.55%5.78%29.78%73.39%
Frasers Group37.52%73.53%86.12%72.90%
4Imprint Group4.19%11.38%23.28%71.35%
Oxford Instruments2.25%27.14%15.37%71.21%
PureTech Health19.76%28.57%28.85%67.32%
Greggs15.56%35.56%1.58%66.96%
Marshalls8.32%26.07%29.22%66.94%
Softcat4.43%23.66%19.81%66.43%
Dunelm Group5.99%41.23%29.76%65.73%
Ultra-Electronics Holdings7.42%13.60%30.11%63.37%

Future has been on a run for some time in fact it’s shares have risen nine-fold over the last decade. The question is will this phenomenal run continue into 2020?

The company trades on a price to book value of almost 6 times (that is investors are prepared to pay a multiple of 5.59 times the value of the assets of the company to own the shares). That tells us that there is a great deal of expectation built into the share price already. The greater the level of expectation is then the harder it becomes for the company’s management to meet it.

Other possible candidates that are running out of steam

Looking for stocks that are showing signs of weakness in 2020, after a good run in 2019, is a somewhat harder task. As very few have shown any real sign of fading momentum, when compared to their prior gains. That said we have highlighted some that may have downside potential, in our fourth table below. These include Spirent Communications, JD Sports and Marshalls.

Performance Data from Digital Look

Name7 Day Chg30 Day Chg3 Mth Chg
Future-2.05%2.29%19.13%
Pets at Home Group-3.97%2.91%31.49%
JD Sports Fashion-2.48%0.92%11.07%
IWG0.64%9.72%11.83%
Games Workshop Group5.03%12.54%40.18%
Aveva Group1.70%6.68%30.20%
Kainos Group-4.83%19.87%71.17%
Rank Group-3.39%8.85%45.12%
London Stock Exchange0.00%13.27%6.24%
Spirent Communications-14.78%-2.55%5.78%
Frasers Group3.87%37.52%73.53%
4Imprint Group-5.56%4.19%11.38%
Oxford Instruments0.00%2.25%27.14%
PureTech Health-6.31%19.76%28.57%
Greggs2.53%15.56%35.56%
Marshalls-5.59%8.32%26.07%
Softcat-3.59%4.43%23.66%
Dunelm Group-0.69%5.99%41.23%
Ultra-Electronics Holdings5.59%7.42%13.60%

Don’t get caught short trying to pick tops and bottoms

It’s often said that trying to pick tops and bottoms in stock prices is a “mugs game” and there is much truth in that saying. It’s usually far better to let the market tell you when a prevailing trend in a stock is fading,rather than trying to pre-empt it.

That’s particularly true in stocks that have had a big run, where there may be a glut of existing short sellers. They are likely to be well offside on their trades and feel trapped in their positions.

In these circumstances they often pounce on any downturns in a share price, using those as opportunities to reduce their exposure. Of course, that means making a purchase trade which helps to support the share price or even move it higher once more.

A bigger battle is looking at wider trends within the market

What we have been describing in this article is part of a wider trend in the market that favours growth over value. In fact the disparity between growth and value has become so wide that some have begun to question whether the concept of value investing is still valid.

I think it’s too premature to announce the death of value, but equally while low interest rates and easy money persist across the globe there is little reason to think that growth stocks will be derailed. That means we need to be fleet footed and flexible in our trading and investing, and not dogmatic and egocentric.

As always, don’t make any decisions based purely on this. Always do lots of research and combine technical with fundamental analysis and take your own investment objectives into account.

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