MARKET COMMENT
Dogs and Darlings of 2001

By James Carlisle
December 28, 2001

So another year in Stock Market history draws to a close (or very nearly anyway) and it has given me an opportunity to play with the Bloomberg machine we have in the office. At the click of a mouse it can tell me the winners and losers from 2001 and I thought it would be interesting information to share. Let's start with the winners:

The Darlings

Top performing shares from in the FTSE 350 in 2001

                                      Sector   % Change   % Change
                                                in 2001    in 2000


Arcadia (LSE: AG.)                   Retail       +202        -10
ICAP (LSE: IAP)                   Financial       +179        +41
Electr Boutique (LSE: EBQ)           Retail       +165       unch
Jarvis (LSE: JRVS)                 Services       +137         +5
Inchcape (LSE: INCH)           Distributors       +112       unch
MFI (LSE: MFI)              Household Goods       +103        +55
Marks & Spencer(LSE: MKS)           Retail         +89        -37
JJB Sports (LSE: JJB)                Retail        +89         -7
MAN Group (LSE: EMG)              Financial        +88        +49
Alf McAlpine (LSE: MCA)   Building & Constr        +86         +4

Top performing sectors in the FTSE 350 in 2001

                             % Change   % Change
                              in 2001    in 2000


Packaging                         +64        -10
Tobacco                           +17        +46
Mining                            +16        -17
General Retail                    +16        -14
Personal Care & Household         +11        +59

So it was a good year for 'value' shares, with the best performing companies and sectors being conspicuously at the boring, dull and cheap end of the market. Of the top ten shares, four are from the retail sector, where sales have held up surprisingly well in the face of the global downturn. This has helped some strong recoveries, notably at Arcadia and Marks & Spencer. It hasn't been all happy times, though, in retail and it only manages fourth in the list of sectors, held back by weak performances from heavyweights Kingfisher (LSE: KGF), down 24%, and Boots (LSE: BOOT), down 4% as well as falls from Carphone Warehouse (LSE: CPW), down 35% and former darling Matalan (LSE: MTN), down 52%. So even if you predicted that sector sales would hold up well in 2001, it would have been hard to pick out the winners.

The best performing sector was packaging, but that's a bit of a cheat because it only has the one share in it, Rexam (LSE: REX), which managed a 64% rise. Tobacco made second place, with strong performances from its three constituents, British American Tobacco (LSE: BATS), up 32%, Imperial Tobacco (LSE: IMT), up 15% and Gallaher (LSE: GLH) up 12%. Mining came third, thanks to its heavyweights, Anglo American (LSE: AAL) up 16%, Rio Tinto (LSE: RIO) up 11% and BHP Billiton (LSE: BLT), up 36%.

Could we have seen any of this coming? Well some people clearly did and others, including me I'm afraid, clearly didn't. It's interesting to note, though, that the performance of these shares in the previous year didn't give much of an indication. The 2001 darlings had been all over the place in 2000.

And the Dogs...

Worst performing companies in the FTSE 350 in 2001

                                     Sector   % Change   % Change
                                               in 2001    in 2000


Marconi (LSE: Moni)              IT Hardware       -94        -34
Colt (LSE: CTM)                     Telecoms       -93        -55
Energis (LSE: EGS)                  Telecoms       -88        -24
Regus (LSE: RGU)            Support Services       -85        +39
Autonomy (LSE: INCH)      Software & PC Serv       -83        -46
Dimension Data (LSE: DDT) Software & PC Serv       -81        -20
Spirent (LSE: SPT)               IT Hardware       -75        +82
CMG (LSE: CMG)            Software & PC Serv       -73        -21
Psion (LSE: Pon)                 IT Hardware       -67        -47
Cordiant (LSE: CRI)            Media & Photo       -65         -5

Worst performing sectors in the FTSE 350 in 2001

                             % Change   % Change
                              in 2001    in 2000


IT Hardware                       -79        -39
Software & PC Services            -56        -48
Media & Photography               -36       unch
Telecoms                          -36        -38
Insurance                         -33        +33

Not too many surprises then, that the biggest, most flea-ridden, smelliest mutt for 2001 was Marconi. The reason, though, is precisely that the company's performance did come as a complete surprise. As we entered the year, the market had high hopes of the company. As the year progressed, the board kept saying that things were on track and then, out of left field, wham! That's the way stock market nightmares are made. I hope you didn't get too badly burned. Anyway, there's a lesson that comes out of it - don't put all your eggs in one basket.

That sort of performance from its biggest stock not surprisingly left the IT Hardware sector at the bottom of the pile, but it wasn't helped by rubbish performances from Spirent and Psion. Not far behind, in second worst place, was Software and PC Services, which managed a fall of 56% thanks to the likes of Autonomy, Dimension Data and CMG. Other heavyweights, Logica (LSE: LOG), down 64%, and Misys (LSE: MSY), down 51%, didn't help matters. More TMT sadness came from Media and Telecoms, in third and fourth place, while Insurance makes an appearance in fifth, almost entirely down to a fall from Royal & Sun Alliance (LSE: RSA), which makes up 86% of the sector.

Looking back to the performances of these stocks and sectors in 2000 shows that they mostly did badly in the previous year as well. It hasn't been a year to have held shares that had fallen in 2000, in the hope of a recovery, because that recovery never came. The trouble is that we couldn't have known that at the beginning of the year. As often as not, the recovery will come and you'd be better off in the sectors that have fallen.

One other interesting thing to spot is that the losses of the losers are limited to 100%, while the winners have the potential to gain much more, with six stocks more than doubling. A portfolio that contained all 20 of the dogs and darlings, in equal quantity, would have done very well, with a gain of 22% over the year. You'll mostly hear that investing is all about avoiding losses, but a big winner will more than make up for a big loser. Finding them, of course, is the tricky part.

Anyway, for a bit of fun, let's see what you're expecting from 2001. The biggest five sectors in the FTSE 350 index are Banks (19%), Oils (13%), Pharmaceuticals (12%), Telecoms (12%) and Media & Photography (4%). Which of these sectors do you expect to perform the best in 2002? Vote here (if you're not a registered Fool already, then you'll need to do that first, but it's not too tricky!)

The author is sorry to say that he doesn't have an interest in any of the darlings of 2001. He does, however, own shares in Autonomy. He still thinks the company has a lot of potential, but then he thought that at the start of the year and look how that's turned out.