4 More Treasures from 2009's "Dash for Trash" Rebound
The financial crisis ended -- at least where the markets are concerned -- four years ago. But some people couldn't believe it was over. On the way back up, they warned that it was a garbage rally -- a sucker's game that would soon take adventurous investors to the poor house. Pundits and analysts pointed to dire financials and warned that soaring speculative selections might soon go the way of the dodo.
Plenty of stocks did go belly-up. But an elite few not only survived, but thrived, producing outsized gains that have made the Dow Jones Industrial Average's four-year double look like chump change. Make no mistake: These were some incredibly risky stocks to chase in the dark days of 2009, as you'll soon see from a few eye-popping then-and-now financial comparisons. Did you listen to the doomsayers and sit on the sidelines, or did you jump in with both feet, not knowing when (if ever) you might touch bottom?
Sucker's-rally stocks that soared
The Dow bottomed out on March 9, 2009 after peaking in October of 2007, and it has since recovered to set fresh all-time record highs. In the four years since that day, the index has gained 120%, which increases to 146% if its components' dividends are added to the calculation. That's not bad, but it can't hold a candle to these "garbage stocks" that turned out to be diamonds in the rough. Each has returned at least 500% since the end of the financial crisis crash, and some have recorded far greater gains than that:
Total Loss From Peak to Trough (2007-2009)
Market Cap at End of Crash
Total Return Since End of Crash
What a wild ride. Let's see how these companies have performed on a variety of metrics, both before and after the crash, to get a better understanding of why their stocks were so hated then -- and why they've since proven the doubters wrong.
What happened to Cheniere Energy?
- Trailing-12-month earnings per share in 2009: -$7.87
- Most recent TTM earnings per share: -$1.83
- Debt-to-cash ratio in 2009: 30.2
- Most recent debt-to-cash ratio: 10.7
- Total return from start of crash to today: -43%
On Jun. 21, 2009, the financial blog Sober Look wrote:
Cheniere Energy has built up enormous capacity to purchase liquefied natural gas, convert the liquid into gas, and pump the gas into the US pipeline system. The idea was to buy up cheap liquefied natural gas from say Kuwait and sell it in the US. In the past this capability to convert LNG into gaseous form did not exist in the US on a large scale. ... Unfortunately for Cheniere, natural gas prices in the US have collapsed as we discussed. At $4/MMBTU, it just doesn't work. So the shares are taking a beating.
Cheniere has been one of the weaker post-crash performers plucked out of the garbage heap. Its revenue, earnings per share, and free cash flow still struggle to break out of a stagnant period that began in 2010. Despite that, its shares have consistently gained, doubling in the second year of post-crash recovery, doubling again the year after, and increasing 40% in the trailing 12 months that end today. When Sober Look examined the company in 2009, Cheniere wanted to import LNG. Now it plans to export the stuff, and, as Fool energy expert Aimee Duffy points out, Cheniere is currently the only American company with virtually unrestricted export permissions. A long-standing glut of cheap natural gas in the U.S. could be a great boon to the company that can ship it to places where LNG is scarce and more costly -- which happens to be just about everywhere except the U.S. This license to print money from gas is far from guaranteed, but investors haven't seen any reason to force a re-evaluation of their thesis yet.
What happened to Wyndham Worldwide?
- Trailing-12-month earnings per share in 2009: -$6.05
- Most recent TTM earnings per share: $2.75
- Debt-to-cash ratio in 2009: 28.6
- Most recent debt-to-cash ratio: 20.6
- Total return from start of crash to today: 110%
On June 4, 2009, Ben Steverman of Bloomberg Businessweek wrote:
It doesn't seem fair: For two years, the stock market favored careful companies that avoided debt, while punishing firms that took big risks. Now, suddenly, the stock market's stars are companies that are, by most objective measures, in terrible shape. The market's rally was led by stocks like ... hotel chain Wyndham Worldwide, up 304%. On March 9, at the start of the rally, 70 of the top 100 [best-performing] stocks had debt loads that actually exceeded their market value, while just 19 of the worst 100 stocks had total debt levels higher than their market capitalization.
Wyndham isn't exactly a fast-growing upstart that got derailed. It was simply beaten down beyond rationality during the crash. As you can see, it's the only stock of this foursome to significantly outperform the Dow from its 2007 peak to the present day. Along the way, EPS has grown 25%, and free cash flow -- which moved into positive territory in mid-crash -- has taken off and is roughly double the hotel chain's net income as of its most recent report. Last year, Wyndham was one of the cheapest of the major hotel chains, and a combination of share buybacks and solid dividend payments contributed to its 44% growth in share price over the past year.
What happened to Avis?
- Trailing-12-month earnings per share in 2009: -$11.04
- Most recent TTM earnings per share: $2.42
- Debt-to-cash ratio in 2009: 6.9
- Most recent debt-to-cash ratio: 15.9
- Total return from start of crash to today: 8%
On Sept. 8, 2009, The Motley Fool's Alyce Lomax wrote:
The stocks of many beleaguered, struggling, debt-laden, second-string companies have soared for no good reason, beyond the possibility that some investors think there might be money to be made from sifting through the market's trash bin. Just take a look at this garbage:
- Avis price appreciation (6 months): 2,316%
- Avis loss per share (TTM): $11.60
- Avis revenue decrease (TTM): 10.8%
- Avis total debt-to-capital: 98.3%
Avis made a splash earlier this year when it acquired hot car-sharing upstart Zipcar at a nice discount over that company's IPO price. The Avis-Zipcar battle has been well-documented here at the Fool, but with such a tight focus on Zipcar, it could be easy to overlook Avis' progress. Even in the dark days of the recession, Avis was reporting more than $1.5 billion in free cash flow, which made its end-of-crash market cap look truly absurd. Today, the company's debt-to-equity ratio is 90% lower than it was in 2009. While that number's still a bit high, steady free cash flow has thus far kept it under control.
What happened to Huntington Bancshares?
- Trailing-12-month earnings per share in 2009: -$0.44
- Most recent TTM earnings per share: $0.71
- Debt-to-cash ratio in 2009: 8.1
- Most recent debt-to-cash ratio: 1.7
- Total return from start of crash to today: (53%)
On April 27, 2009, Tom Lauricella wrote in The Wall Street Journal:
The biggest winners since the stock market bounced off 12-year lows in early March have been the most beaten-down names, which, in the eyes of many investors, also have the riskiest outlooks. This winners list has been dominated by financial stocks, many of which have more than doubled in value in just a month and a half. ... Even as financial stocks have bounced, expectations for the group's earnings have eroded further. The consensus is for financials to post a 45% profit drop in the second quarter, five percentage points more than on April 1. The bounce in many financial stocks, however, has been dramatic. ... Huntington Bancshares is up 200%.
Huntington's problems were hardly unique in the banking sector. However, the Ohio-based bank received one of the largest non-TBTF bailouts from the Troubled Asset Relief Program, and for a while it seemed things might be a bit touch and go. Huntington made a strong recovery and paid the government back with $196 million in interest by the end of 2010, at which point it had made nearly all of its post-crash rebound gains. The regional bank continues to post solid numbers and respectable growth rates, and a more conservative post-crisis management style has made it one of Fool banking expert John Maxfield's favorite sector selections.
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal or if finance stocks are a screaming buy. The answer depends on the company. To help you figure out whether Huntington Bancshares is a buy today, I invite you to read our premium research report on the company before you miss out on even greater gains. Click here now for instant access!
The article 4 More Treasures from 2009's "Dash for Trash" Rebound originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology. The Motley Fool owns shares of Huntington Bancshares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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