Barclays plc, BP plc And Tesco plc Show Why Investors Must Beware Aftershocks

BP plc (LON: BP), Barclays plc (LON: BARC) and Tesco plc (LON: TSCO) demonstrate why investors should resist the temptation to buy on bad news, says Harvey Jones

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I first started investing I made the repeated mistake of charging into bombed-out stocks on the assumption that because they were cheaper, they were better value.

I thought I was being contrarian, but I was being naive.

I bought BP (LSE: BP) while clean-up workers were still hosing down seabirds and the share price still had a long way to fall.

I made similar mistakes with Barclays (LSE: BARC) (NYSE: BCS.US) and Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), buying on bad news, only for worse to follow.

All three stocks have taught me one hard lesson: when a company’s share price collapses, the aftershocks can rumble on for years.

BP: The Pain Isn’t Over Yet

After the Gulf oil spill in April 2010, analysts forecast that BP faced a shocking $23bn loss.

The figure is now twice that sum, and rising. Some say they could total $90bn, which puts my own losses in the shade.

Nearly five years later, BP’s share price is 441p, one-third lower than the pre-Deepwater peak of 653p. Other factors have played a part, notably the oil price collapse, but it all started in Mexico.

Barclays: Still Bad?

Barclays’ share price peaked in February 2007 when the phrase credit crunch was unknown, and investors thought the stock looked fair value at 721p.

Eight years later it trades at 240p, one-third of its all-time high, as the aftershocks of the financial crisis rumble on and on.

Politicians and regulators have inflicted slow revenge on the banks. Tougher regulation, fraud investigations, fine inflation, competition enquiries, mis-selling and bank bonus scandals, all flowed from the original disaster.

As the aftershocks finally die down, it’s hard to know how much of the investment case is still standing.

Tesco: More Shocks To Come?

When Tesco issued its first profit warning in January 2012, the stock traded at 405p. I bought shortly afterwards, only to see the price slide to a low of 170p as more warnings followed

Fluffed global expansion, exiting chief executives, accounting scandals, vanishing customers, the rise of German discounters, all were pre-figured in that first set off shock results.

When disaster strikes, it is usually a sign of something fundamentally wrong with the business, which can’t be put right in a matter of months.

If you’re tempted to buy Tesco on signs of recovery today, watch out: history suggests they may be more shocks ahead…

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Among the highest UK dividend yields, one immediately begs for closer inspection. Can this double-digit marvel really pull it off?

Read more »

Middle-aged black male working at home desk
Investing Articles

Here’s how Aviva shares could soon rise a further 20%… or fall 15%!

Aviva shares have fallen back a bit, with Q1 results due in May. But analysts are mostly optimistic, and see…

Read more »

Dominos delivery man on skateboard holding pizza boxes
Investing Articles

£5,000 invested in high-yield FTSE 250 stock Domino’s Pizza on 7 April is now worth…

Anyone who put £5,000 into FTSE stock Domino’s Pizza after the Easter break would now be laughing as its share…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

Tesla stock’s up 50% in a year. Could it go even higher?

This week saw Tesla announce mixed first-quarter results. Yet Tesla stock's worth half as much again as a year ago.…

Read more »

Businessman hand stacking up arrow on wooden block cubes
Investing Articles

Up 9% today, is this FTSE 250 share’s recovery gaining pace?

This FTSE 250 share has had a welcome boost in the market today after it unveiled an upbeat trading statement.…

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

5 years ago Barclays shares cost just 181p! Are they still a buy at today’s 434p?

Harvey Jones says investors have to pay a lot more to buy Barclays shares than just a few years ago,…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Up 36%, could Shell shares still offer value for the long term?

Christopher Ruane has owned Shell shares before -- and got burnt by a dividend cut. Could recent oil price rises…

Read more »

A young Asian woman holding up her index finger
Investing Articles

£5,000 invested in FTSE 100 stock London Stock Exchange Group 1 month ago is now worth…

FTSE 100 powerhouse London Stock Exchange Group has been dragged into the software sell-off. However, recently, it has started to…

Read more »