Jordan Craw
Jordan Craw

2009 was a year of recoveries – for the economy, the financial system and battered stocks. Reading varied financial research over the past few months, there have been a number of themes that are consistent. These being firstly that after the ‘economic sweet spot’ in the third quarter of 2009, the speed of the recovery will slow in 2010. Flowing on from this is the idea that 2010 will see more a stock picker’s market compared to 2009 where almost all ships were lifted with the tide.

The second theme is that the best stocks of 2008 underperformed in 2009, suggesting that the same may occur in 2010. With that in mind, let’s have a look at if this theory about the best in 2008 underperforming in 2009. Is it true?

To establish this I have used the Market Scanner in ProfitSource to establish the ten best and worst performing stocks of 2008*. These can be seen in Table 1. This simple measure so far confirms the notion. Not only did the worst stocks of 2008 outperform the best of 2008 in 2009, they returned more than twice the ASX 200’s increase of 30.85%.

Table 1 – Best & Worst in 2008

2009 Performance of Worst in 2008 2009 Performance of Best in 2008
AED -41.18% AGK -7.86%
AIO 50.56% AOE 55.60%
AWC 53.10% CCL 25.14%
EQN 170.62% ILU -21.98%
FMG 132.12% MTS 2.28%
MGR 34.58% NCM 3.78%
PIH -68.18% OMH 69.57%
RIV 199.59% ORG 4.03%
TSE 135.16% OSH 31.83%
WOR 104.95% STO 2.19%
Average 77.13% Average 16.46%

*additional liquidity criteria applied: price greater than $1 and average volume (252) greater than 1000000.

Chart 1 compares the performance of both groups and the ASX 200 (XJO).

Chart 1 – 2009 Performance Comparison

click chart for more detail
click to enlarge

This is somewhat of a paradox as it is not unreasonable to expect that the stocks that survived best in 2008 would be best placed to profit from a recovery. Clearly in this case, many stocks were heavily oversold - or at least perceived to be.

The sixty-four million dollar question right now is ‘will 2010 yield a similar pattern?’ Well here are the ASX’s 10 best and worst performers of 2009 in alphabetical order, with the same liquidity filters applied.

Table 2

Best 10 of 2009 Worst 10 of 2009

It is interesting to note that more than 75% of stocks finished 2009 in positive territory, compared to 7.4% in 2008 and 46% in 2007. In fact, the average for the last 10 years is 45% stocks finishing the year higher than where they started. Certainly this proves that 2009 was the easiest year to generate positive returns for some time – after one of the worst of course! In turn, it would seem that this supports the first theme that 2010 is likely to provide more of a challenge in terms of stock selection.

Happy Trading

Jordan Craw