Judging from the way everyone's talking about beaten-down stocks, you'd think that it's time to load up on canned goods and ammunition. But for every stock that's down 70%, 80%, or even 90%, you'll find plenty more that haven't given up nearly as much of their gains.
Obviously, investors first look at how much value their portfolios have lost. Yet another way to look at downward moves in stock prices is to look at the last time shares traded at current prices. That way, you can gain some perspective on just how long it might take for you to earn back those lost profits when the market turns.
A tale of two markets
You've heard a lot about how the stock market overall recently hit levels not seen since 1997. Right now, the S&P 500 is hovering near its 2003 lows.
A number of stocks have been hit particularly hard. General Motors (NYSE:GM) fell to its lowest level in 70 years last November. Shares of financials like Citigroup and Bank of America (NYSE:BAC) haven't traded this low since the early 1990s.
Yet if you look closely, you'll see many companies whose shares aren't at decade-long lows. In fact, in more than a few cases, the recent price drops look more like a correction when you view it from a longer-term perspective. Consider these well-known stocks:
|
Stock |
Current Price |
When Stock First Reached Current Price |
1-Year Return |
|---|---|---|---|
|
Apple (NASDAQ:AAPL) |
91.51 |
November 2006 |
(31.6%) |
|
ExxonMobil (NYSE:XOM) |
76.69 |
November 2006 |
(9%) |
|
Monsanto (NYSE:MON) |
75.85 |
September 2007 |
(33.2%) |
|
Research In Motion (NASDAQ:RIMM) |
55.90 |
May 2007 |
(39.4%) |
Source: Yahoo! Finance. Current price as of Feb. 2.
The different paths these stocks took to get to their current levels reflects the underlying cause of the downturn. Financial companies have had their entire business models called into question because of severe deleveraging and bad credit decisions. Automakers and other large manufacturers face a threat to their existence because of competitive pressure and high institutional costs like pension liabilities.
On the other hand, many stocks enjoyed a substantial boom late in the bull market. Oil and commodities stocks benefited from rising prices long after much of the rest of the market had begun to sell off. And consumers kept buying hot products like iPhones and BlackBerries even after they started cutting back elsewhere.
First in line
So which of these groups will bounce back faster? Will hard-hit financials and industrials come back as quickly as they fell, or will other stocks caught in the collateral damage from the financial crisis recover more quickly?
During the aftermath of the tech bust, the recovering economy tended to favor old-economy businesses -- many tech companies didn't survive at all, while many of those that did still haven't found their way back to their previous highs. Meanwhile, some blue chips, such as Altria (NYSE:MO), made their way through the 2000-02 bear market almost without a hitch and continued on to make new highs thereafter.
This time around, few stocks have avoided the meltdown entirely. Given the far-reaching impact that the financial system has on the entire business world, a solution to the problems that financial companies face will also have a hugely positive effect on the entire stock market. The general melt-up in stocks that could result from solving the economy's problems could make the 1990s bull market look like slow motion.
That successful resolution, however, remains elusive -- and could be for a long time. In the meantime, you need to remember that even when market indexes languish, certain companies within those indexes tend to perform well. If you seek out and find those stocks, it won't matter when an overall recovery comes.
For more investing tips, read about:
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