Is it time to buy the 3 worst performing NYSE stocks in 2020 so far?


COVID-19 has made one number on the stock market – multiple numbers, in fact.

From January 1 to the market low on March 23, the New York Stock Exchange Composite Index lost 37% of its value. Granted, the NYSE then rebounded in April and rose 48% through Wednesday’s close – but here’s the funny thing about the percentages:

If a $ 100 stock goes down 37%, then goes up 48%… you might instinctively think you should end up 11% ahead (because 48 minus 37 equals 11). But it doesn’t work that way. In fact, your stock would only be worth $ 93 after this cycle of up and down, and you would still be 7% behind where you started – just like the NYSE index is today.

Image source: Getty Images.

Some NYSE stocks are much lower. Currently, the three worst performing stocks on the NYSE since the start of the year (among small caps and large – anything with a market cap above $ 200 million) are Hertz Global (NYSE: HTZ), Callon Petroleum (NYSE: CPE), and Invesco Mortgage Capital (NYSE: IVR). But just because these stocks are trading at small fractions of their previous values, does it make them buy?

HTZ data by YCharts

Hertz Global: down 90% since the start of the year

Well, think about it. Stocks don’t drop by accident, do they? If shares in car rental company Hertz, for example, cost more than $ 16 at the start of the year, but cost less than $ 2 today… there’s probably a reason for that.

In the case of Hertz, the reason the stock has fallen by around 90% so far in 2020 is that the company has had three straight quarters of losing money and is expected to continue losing money. money as far as the eye can see. Ultimately, this string of losses, combined with the fact that there is little chance of resuming business for an extended period of time when hardly anyone is traveling by air (and hiring cars at their destinations), has forced Hertz to file for Chapter 11 bankruptcy protection in May.

Hertz management has warned investors not to buy its shares, confident that “there is a significant risk that … our common stocks will be worthless” at the end of the bankruptcy process. However, regardless of the risks, traders kept moving in and out of the stock – at one point, their price rose 10 times higher than the day the bankruptcy filing was announced.

Invesco Mortgage Capital: down 81% year-to-date

The Invesco real estate investment trust has yet to file for bankruptcy, but it faces its own near-death experience.

Dividend investors often prefer mortgage REITs like Invesco for their generous dividends, but in Invesco’s case, the massive $ 1.6 billion loss it suffered in the first quarter caused the company to cut its dividend. from $ 0.50 per quarter to just $ 0.02. Things only improved slightly in the second quarter, for which it released results last week – a loss of $ 300 million.

Bottom line: In the past six months alone, Invesco’s book value per share has fallen from $ 16.29 to just $ 3.17, which is less than the stock is currently selling for. Investors can hope for a rebound, but as my colleague Fool Brent Nyitray recently pointed out, “REITs generally stay around book value and are supported by their dividend yield”. Considering that Invesco is now trading above its book value and its dividend is earning 2.5%, there isn’t much to like about this stock.

Callon Petroleum: 79% drop since the start of the year

And finally, there is Callon Petroleum. The fortune of the oil exploration company is tied to the state of the oil market – and as you may have noticed, oil prices don’t look too healthy. While West Texas Intermediate no longer trades at real negative prices, a barrel of crude still earns barely two-thirds of what it did at the start of the year today.

Low oil prices have devastated Callon’s profitability. According to data from S&P Global Market Intelligence, it recorded a loss of $ 1.5 billion last quarter – losing more money in three months than it had earned in the previous 20 years combined. And this unprofitable oil company works under a balance sheet laden with $ 3.4 billion in long-term debt, compared to just $ 7.5 million in cash.

Suffice it to say, if you want to survive a recession, there are better ways to get started than to be unprofitable and go into deep debt.

Invest in success

After taking all of the above into account, I repeat the question: Should investors consider buying these three worst performing NYSE stocks now? But I think the answer is obvious:

No i do do not I think now is the time to buy these stocks – because it’s important to consider not only how cheap a stock’s valuation is, but also why it is so cheap. There are serious obstacles between each of these endeavors and future success, and I am not at all convinced that any of them can overcome them. So at this point I suggest you take the advice of master investor Warren Buffett, who has often said that it is “much better to buy a wonderful business at a fair price than a fair business at a wonderful price”.

To that I would only add that much worse than either is buying a business on its deathbed – regardless of the price.


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