Not all companies have soared higher during this great stock market bounce. Some high quality companies have been left behind for now, but not for long.
The great bull market of 2009 is still intact. The FTSE 100 is up over 25% since its bottoms of early March. In just over two months, it remains one of the quickest market bounces the stock market has ever experienced.
The severity of the preceding stock market collapse coupled with this impressive rally has the investment community stumped as to the market's next move.
Which Way Will The Market Move Next?
There are plenty of great investors who'll tell you this is just the beginning of a long bull market. Their argument is shares are cheap, especially when compared to the returns you can get in a high interest savings account.
On the other side, there are plenty of astute investors who'll tell you this is nothing but a bear market rally, and worse is to come. Their argument goes that this is the worst recession since The Great Depression and that as such, it will take years, maybe decades, for the economy to recover.
I continue to take the middle ground, supposing the stock market will trade in a flat range for the next few years. Yet that doesn't mean there isn't big money to be made, and lost, by investing in the stock market.
Last week, in The Top 10 Bounce Back Stocks, I listed the biggest FTSE 350 winners since the bottom of the market on 9 March. Household names like Barclays (LSE: BARC), Legal & General (LSE: LGEN) and Debenhams (LSE: DEB) had all soared over 150%, with Barclays leading the way with an astounding 360% gain.
It remains a quite amazing run, certainly for the top 10 huge gainers, but for the share prices of most companies. However, you need to put the gains in some context -- Enterprise Inns (LSE: ETI) is now up 228% since 9 March 2009, but still down a very painful 71% over the past 12 months.
The 10 Biggest Losers
Despite the huge run-up, not all shares have joined in the party. Here are the biggest losers from the FTSE 350 index since the market bottomed…
| Company | Share Price 9 Mar | Share Price 15 May | Loss |
|---|
| 888 Holdings (LSE: 888) | 116p | 98.5p | 15% |
| International Personal Finance (LSE: IPF) | 94p | 80p | 15% |
| IG Group (LSE: IGG) | 258p | 225p | 13% |
| Mouchel Group (LSE: MCHL) | 295p | 262p | 11% |
| Telecom Plus (LSE: TEP) | 330p | 295p | 11% |
| De La Rue (LSE: DLAR) | 1,049p | 941p | 10% |
| Eaga Group (LSE: EAGA) | 139p | 129p | 8% |
| Bunzl (LSE: BNZL) | 541p | 503p | 7% |
| St James Place (LSE: STJ) | 169p | 158p | 6% |
| Hochschild Mining (LSE: HOC) | 224p | 210p | 6% |
The first thing you'll notice is that the losses have been relatively minimal. In fact, during this period, just 28 out of the 350 stocks recorded a fall.
It's also a timely reminder that share prices can 'only' fall by 100% whereas their upside is unlimited. It's why we are constantly reminded to "cut our losses and run our profits".
No Trash Stocks Here
If there is a general theme in the above companies it might be that generally their shares prices have not been pounded down by the market to absolute bargain basement prices.
The huge run up in share prices since the market bottom has sometimes been referred to as a 'dash for trash'. Some of the biggest winners have been companies whose very survival has been in question -- companies like Inchcape (LSE: INCH) and Taylor Wimpey (LSE: TW).
Telecom Plus is no trash stock. It was recently named the Financial Times Company of the Year, has no debt and is growing strongly. It's 'problem' is that it trades on a premium forward price to earnings ratio (P/E) of 12. In these days of lower P/E ratios, that rating leaves relatively limited scope for significant near-term share price appreciation.
IG Holdings is likewise a growing company which has no debt. An early March trading statement knocked the shares for 30%, but this spread betting concern remains a high quality company. A re-rating may be possible, as they trade on a forward P/E of 10 and a forward dividend yield of 6%. But compared to Enterprise Inns, who at the March bottom were trading on a trailing P/E of just 1, the scope for a re-rating again might be somewhat limited.
The Place To Look Now For Great Stocks
There are no free lunches when it comes to investing. Cheap stocks are usually cheap because they've got hair on them. You pay your money and you take your chances. If you get lucky, the results can be truly stupendous.
But the dash for trash is now over. In the long term, quality always wins. It's time to start digging around some of the high quality companies left behind in this great bull market.
If you are looking for high quality companies trading at decent prices, look no further than The Motley Fool's Champion Shares premium stock picking service. IG Holdings is just one of 11 companies Chief Analyst Maynard Paton currently rates as a buy. Get instant access to the names of all these companies by taking out a free 30-day trial. Click here for more details.
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> Of the companies mentioned in this article, Bruce Jackson has a beneficial interest in Barclays.
