S&P 500 Bottom Fishing

Despite all the volatility over the last month, there are surprisingly few names in the S&P 500 showing outsized moves YTD in either direction.Yesterday we reviewed the winners – those stocks with 2018 performance of +20%.

There are just 15 of these big winners. By sector, they are:

Consumer: Dr Pepper Snapple (DPS), Fossil Group (FOSL), and Tapestry (TPR, the former Coach)
Financial Services: XL Group (XL)
Industrials: Grainger (GWW)
Health Care: Nektar (NKTR), Idexx Labs (IDXX), Edwards Lifesciences (EW)
Technology: Amazon (AMZN), Netflix (NFLX), Adobe (ADBE), Red Hat (RHT), Seagate (STX), Autodesk (ADSK), and Frontier Communication (FTR).

Our key takeaways from the +20% return list:

  • Even with all the recent drama around Facebook, there are plenty of other vectors in Technology that are working well. The fact that almost half this list is Tech tells that story, and we still like the group.
  • Mergers & acquisition activity has not delivered many big winners YTD. The only ones on the list: Dr Pepper (proposed merger with Keurig), Nektar (potential sale) and XL Group (bid from AXA). Rising interest rates may continue to keep the lid on M&A in large cap names such as those in the S&P 500.

Today, we add the “Loser list” to this analysis: S&P names that are down 20% or more on the year.

There are 10 names in total:

Energy/Materials:

  • Cimarex Energy (XEC): -22.2%.
  • Albemarle (ALB): -27.0%.

Utilities:

  • Dominion Energy (D): -20.0% (Note: has a 5.2% dividend yield)

Consumer:

  • Kraft Heinz (KHC): -20.9% (Note: has a 4.0% dividend yield)
  • General Mills (GIS): -24.3% (Note: has a 4.4% dividend yield)
  • L Brands (LB): -37.1% (Note: a 6.3% yield, typically a sign the market questions its sustainability)

Health Care:

  • Incyte Corporation (INCY): -30.1%

Industrials:

  • General Electric (GE): -25.7% (Note: a 3.7% yield, lower than KHC or GIS)
  • Acuity Brands (AYI): -26.2%

Real Estate:

  • KIMCO Realty (KIM): -21.1% (Note: the company specializes in shopping centers)

Our thoughts on the losers YTD:

  • With crude oil prices turning, XEC is worth a look. The S&P 500 Energy sector has begun to turn higher, and is only down 2.2% on the year. Cimarex is the worst performing name in the group YTD, and sometimes when investor sentiment turns positive on a sector the laggards can move the most.
  • Many of the “Biggest loser” names have relatively high dividend yields (KIM, GE, LB, GIS, KHC, and D), and when interest rates were dropping that was attractive. Now, with rates on the rise, this is less of a feature.