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There’s no doubt that 2008 will go down in history as one of the worst years on financial markets. In Australia the bourse has dropped by around 45%, making this the worst calendar year in more than 50 years.
But that doesn’t mean that all stocks have done poorly; in fact there have been a number of great success stories over the past 12 months. Indeed there have been over 70 companies on the ASX that have gained ground since the start of the year, the best being Altera Resources which has climbed over 1800% higher! But even if we look only at stocks with a market capitalization of more than $500m, there have still been some great performers.
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Company
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% Gain
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Linc Energy Ltd
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143%
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Sunshine Gas Limited
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107%
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Origin Energy
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87%
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Queensland Gas
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86%
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Aneka Tambang
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67%
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New Hope Corporation
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38%
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Midwest Corporation
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34%
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AGL Energy Limited
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14%
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Iluka Resources
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12%
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Navitas Limited
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11%
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Coal & Allied
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8%
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Ansell Limited
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7%
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Santos Ltd
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6%
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Felix Resources Ltd.
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4%
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Of course, hindsight is a wonderful thing, and even though most of us would have missed out on many of these wins, there are nonetheless some valuable lessons we can draw from these examples.
One thing that stands out is that most of these companies belong to the energy sector – even though oil has tumbled from almost US$150 / barrel to less than US$40 / barrel in the past 5 months. A big part of the explanation is the revaluation of coal seam gas assets, and the slide of the Aussie dollar, but in this regard both of these factors would have been difficult to forecast.
However the other thing that most of these companies have in common is conservative gearing levels and quality assets. Factors that were largely ignored by investors prior to the credit crunch, but are now being closely watched.
There’s no coincidence that companies that have minimal debt refinancing obligations and solid balance sheets have been the ones to do well in the current environment. Indeed, those at the other end of the spectrum, have been those with very high levels of debt, and assets that have plummeted in value.
Consider the worst performing stocks with a market capitalization of more than $10m.
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Company
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% Loss
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Babcock & Brown Ltd
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-99%
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City Pacific Limited
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-98%
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Becton Property Grp.
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-98%
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Babcock & Brown Pwr
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-98%
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Admiralty Resources.
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-98%
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Albidon Limited
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-97%
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Allco Finance Group
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-97%
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Bluefreeway Limited
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-97%
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Valad Property Group
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-97%
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Everest Babcock & B
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-96%
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Living & Leisure Grp
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-96%
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ING Re Com Group
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-96%
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So the moral of the story? If a company is sitting on poor assets, and has borrowed to excess – ignore it at all costs! Many traders argue that fundamental considerations such as these are unnecessary, but as you can see, they can help you avoid some very costly mistakes.
Make the markets work for you
Andrew Page
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