It's shaping up to be a critical weekend for the once mighty Lehman
Brothers. Will the firm find a saviour or will it go the way of Bear
Stearns? For the sake of all involved, I hope that Lehman survives.
But for shareholders, the damage has already been done. Its stock is
down 94.4% this year and it's off 89.3% over the last five years. So,
even if Lehamn fails entirely, shareholders will only lose 5.6 cents
from the dollar that they had invested in the firm at the start of the
year. (Not counting dividends.) Essentially, Lehman shareholders have already been wiped out.
Lehman's plight got me thinking about other large-cap stocks which
have fallen on hard times. My laggards list is composed of firms in
the S&P500 that have fallen more than 50% this year. The list is
stuffed full of brand-name firms. Even the hip Whole Foods has
declined 54.8% this year.
Imagine stepping back in time about five years and asking yourself if
you'd have expected Bear Stearns, Lehman Brothers, Washington Mutual,
and AIG to have all fallen by about 80% over the next five years. I
sure wouldn't have made that call. These days we're all wondering if
any of these firms is likely to survive the next five years.
Here's the quandary. Are the firms on our losers list likely
to persist in their unprofitable ways? There is some evidence to
suggest that negative momentum persists in the short term. Say for
about one year or so. But past losers are also likely to become big
winners over the next four years.
Nonetheless, catching falling knives can be a dangerous and
nerve-wracking occupation. You want to be assured that the firm in
question will survive and that its current share price represents a
truly excellent value. Even after such reassurances, it usually
doesn't hurt to wait for a hint of a turnaround.
But fortunes can be made by the brave who step up and buy, after doing
some significant due diligence, near the point of maximum pessimism.
That's why it is a good idea to keep an eye on the worst performers
for a discarded gem or two.
Company Price YTD Gain 5Yr Gain Yield
======================== ====== ======== ======== =====
Lehman Brothers (LEH) $3.65 -94.4% -89.3% 1.4%*
Washington Mutual (WM) $2.73 -79.9% -92.6% 1.4%
AIG (AIG) $12.14 -79.2% -79.8% 5.0%
National City (NCC) $4.82 -70.7% -84.2% 0.8%
NVIDIA (NVDA) $10.19 -70.0% 58.0% 0.0%
MGIC Investment (MTG) $6.81 -69.6% -87.7% 1.5%
Merrill Lynch (MER) $17.05 -68.2% -68.5% 7.2%
Ciena (CIEN) $12.00 -64.8% -75.2% 0.0%
XL Capital (XL) $17.78 -64.7% -76.2% 4.1%
Wachovia (WB) $14.27 -62.5% -65.2% 1.4%
MEMC Electronic (WFR) $34.34 -61.2% 153.4% 0.0%
Tesoro (TSO) $19.06 -60.0% 325.0% 2.2%
Manitowoc (MTW) $20.95 -57.1% 262.0% 0.4%
Titanium Metals (TIE) $11.46 -56.7% 1366.9% 2.6%
International Game (IGT) $19.51 -55.6% -27.4% 2.9%
Gannett (GCI) $17.53 -55.1% -77.2% 9.0%
NYSE Euronext (NYX) $39.64 -54.8% N.A. 3.1%
Whole Foods (WFMI) $18.43 -54.8% -31.6% 4.2%
Source globeinvestor.com, September 12, 2008
* Corrected to reflect its recent dividend cut.
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