Fifth Anniversary of 2008-09 Stock Market Low: Looking for Laggards Poised to Rebound

March 12th, 2014 by George Putnam, III
DO: Diamond Offshore Drilling logo
DO
Diamond Offshore Drilling

Submitted by George Putnam, III as part of our contributors program.

Fifth Anniversary of 2008-09 Stock Market Low: Looking for Laggards Poised to Rebound

March 9, 2014 was the fifth anniversary of the low point in the 2008-09 stock market meltdown. The S&P 500 stock index closed on that day at 676.53, and since then it has risen by 172% (not including dividends). Of course, some stocks have risen even further than the index, and others have performed less well.

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Being a contrarian, I am not inclined to chase the winners. Instead I like to sift through the losers, looking for stocks that have been left behind but still represent good value. In that spirit I combed through the stocks in the S&P 500 that have performed the worst since the market bottomed out on March 9, 2009. The three value stock picks described below represent a diversified group of businesses that I think could have good rebound potential; and I recently recommended even more contrarian investing opportunities.

Avon Products (AVP), the largest global direct seller of beauty products, is in the midst of a turnaround following a number of years of lackluster growth and profitability. A new C.E.O., Sheri McCoy, was brought in from Johnson & Johnson’s pharmaceutical group where she led a major restructuring. The Avon turnaround, however, hit a bump last October when the company reported continuing weak top- and bottom-line results and ongoing legal problems related to bribery allegations in China. I suspect that the bad news is fully priced into the stock, giving it good turnaround appeal.

Best Buy (BBY) is caught in the battle between bricks-and-mortar and online retailing of consumer electronics. The stock performed well for most of 2013, but it got crushed when the company reported weak holiday sales in January. The jury is still out on how the bricks-and-mortar guys will hold up to the online onslaught, but with its national footprint and strong brand name Best Buy is in as good a position as any traditional electronics retailer to survive and prosper. The company is still generating solid cash flow, which supports an attractive dividend.

Diamond Offshore (DO) operates the world’s largest fleet of semi-submersible rigs for offshore oil drilling. The stock has never really recovered from the slowdown in offshore drilling following the BP disaster in the Gulf of Mexico in 2010. Nonetheless, the company has been steadily upgrading its fleet, and is well positioned to profit from future increases in drilling activity. Diamond has been regularly paying a “special” dividend since 2008, which gives the stock an impressive 7.3% yield. There is no guarantee that the company will continue paying the “special” portion of the dividend, but it’s been pretty regular.

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