Foolish Special

[ December 22, 2000 ]

Worst Performing Sectors of 2000

Carburton Street, London -- It's been a tough year for investors of the so-called "new economy". After the stock market euphoria of 1999, a sudden change in sentiment during the Spring sent stratospheric TMT valuations crashing down. Essentially, 2000 was the year that positive cash flow came back into fashion. That said, shareholders of certain traditional industries didn't escape too lightly either. Those sectors involved in various forms of metal bashing or heavily reliant on consumer spending fared particularly badly.

Taken from the All-Share Index, here are the ten worst performing sectors over 2000.

Sector                        Change since 1 Jan 2000 (%)

Steel and Other Metals                     -59.6
Software and Computer Services             -43.6
Telecommunication Services                 -34.5
Information Technology Hardware            -31.9
Automobiles                                -26.5
Engineering and Machinery                  -22.6
Leisure, Entertainment and Hotels          -19.3
Mining                                     -19.0
General Retailers                          -14.5
Restaurants, Pubs and Breweries            -13.0

Nerves of steel

The first sector, Steel and Other Metals, is essentially Corus Group (LSE: CS.). Shares of the Anglo-Dutch steel combine entered the year in fine fettle as investors anticipated great things from the British Steel and Hoogovens combine. However, operational problems and a strong Pound wreaked havoc on the company's profits during the year. Since being described as a company for the "ancient economy", the shares have slumped 60% and now attract certain "value" interests.

Tech stock woe

Here's where the year's underperformers really start to get ugly -- Software and Computer Services. Of the 56 All-Share constituents listed throughout the year in this sector, only 11 have showed a share price improvement since January 1st. But the really startling statistic is that 28 of those 56 have lost over 50% of their value since New Year's Day. Big names such as Sage (LSE: SGE), down 52%, FI Group (LSE: FI.), down 62%, and GEO Interactive Media (LSE: GIM), down 63%, have all experienced severe declines on general valuation concerns.

However, those computer firms that issued a profit warning during the year endured even more precipitous falls. DCS Group (LSE: DCS), down 91%, Compel Group (LSE: CGR), down 88% (the dangers being spotted in this feature), Financial Objects (LSE: FIO), down 84% and Sema (LSE: SEM), down 74%, have all given software shareholders plenty of heartache. And a special mention must go to discussion board favourite Freeserve (LSE: FRE), whose shares collapsed 80% on general cash burn worries and whose shareholders were recently rescued by French ISP Wanadoo.

Telecom turmoil

Turn to telecoms and you'll find investors faired little better. The sobering fact from this particular sector is that the best performer, Cable & Wireless (LSE: CW.), fell 10% over the year. General valuation concerns, this time coupled with reservations over the high cost of 3G licences, sent telecom shares into a continuing downward spiral. FTSE 100 heavyweight Vodafone (LSE: VOD), although buoyed by its acquisition of Mannessmann, managed a 17% decline, while British Telecommunications (LSE: BT.A) dived 57% on worries of increasing competition and debt levels. Of the 13 All-Share telecom shares, ten have lost more than 50% of their value during 2000.

Hard times for hardware

Unless you've been tightly holding onto the likes of Telemetrix (LSE: TMX) or Spirent (LSE: SPT), both up 80% on the year, those dabbling in the highly-rated Information Technology Hardware sector during 2000 have also had a turbulent time. Favourites of the TMF Staff Investment Club, ARM Holdings (LSE: ARM) and Marconi (LSE: MONI) have both fallen 30% since the beginning of the year, even though their financial performances have been well up to scratch.

But others in the sector faired less well, mostly disappointing their investors with profit troubles. Psion (LSE: PON) has sunk 42%, BATM Advanced Communications (LSE: BVC) has lost 75% and Filtronic (LSE: FTC) has dived 80% from their January 1st share prices after all delivered various hi-tech warnings in the year.

Game Over

And given the turbulence in certain parts of the stock market, perhaps investors were too busy watching their deteriorating portfolios for any leisure time indulgence. Poor trading at holiday firm Airtours (LSE: AIR) and trouble at the gaming tables (the imminent danger highlighted in this feature) for London Clubs International (LSE: LCI) halved both companies' share prices over the year. Elsewhere, those bearish on computer game developers had the last laugh in 2000. Both Eidos (LSE: EID) and Rage Software (LSE: RGE) have fallen 80% since the New Year as game players delayed their purchases while waiting for the latest consoles.

Tragic Transport

Moving to the old economy, and firmly in reverse during 2000 was the motor industry. Car parts supplier and bus manufacturer Mayflower Corporation (LSE: MFW) saw its shares wilt 65% during the year as the investors focused on the general malaise in the car industry rather than the company's reasonable financial performance. But while Mayflower shares gradually slipped ever downwards week after week, Torotrak's (LSE: TRK) fall from grace was slightly more dramatic. After announcing that Toyota had pulled out of a licensing deal for the company's newfangled gearbox, Torotrak shares promptly slumped 60% in a day, a fall that reflects the group's overall annual share price performance.

Staying with the transport theme, another share that failed to float upwards in 2000 was Cammell Laird (LSE: CMM). The ship builder lost 78% of its value during the year as Italian contract difficulties gave every reason for its investors to jump overboard. And dragging the engineering sector down further was perennial value stock Tomkins (LSE: TOMK). Since the start of the year, the conglomerate has lost its guns-to-buns tag, its Chief Executive and 30% of its value.

High Street Horrors

Plenty of price-conscious consumers led to many tales of tough trading on the High Street during 2000. Plummeting sales resulting in a cut dividend caused former High Street stalwart Marks & Spencer (LSE: MKS) to lose 35% of its value since January 1st. Meanwhile, general competitive pressures and an 80% stake in Freeserve kept Dixons (LSE: DXNS) a hefty 41% below its 2000 opening share price.

Of course, the oft-described danger of investing in specialist retailers were for all to see during 2000. Clothing chain New Look (LSE: NEW) was one of many that found a bottom during the year, the company losing 32% of its value after succumbing to the tough retail environment. Another loser was Clinton Cards (LSE: CC.), the card retailer failing to send any seasonal greetings with a 61% loss.

Drink of despair

And don't think that investors were tempted to drown their sorrows after this year's stock market losses either. Most pub operators, breweries, or former breweries, gave their shareholders little cheer. Of the ten booze-related companies listed in the All-Share index, only "value" stock Greene King (LSE: GNK) made any noticeable share price headway. The pub chain that gave investors the greatest of hangovers was Yates Group (LSE: YTE), the company losing 60% of its value during the year after a dreary trading performance.

Top dog portfolio

Think you've had a bad year? If so, then spare a thought for fellow Fools who had the unfortunate experience of owning companies in the following table. Ignoring the likes of Independent Energy (LSE: IEH) and others that went bankrupt, here's probably the worst portfolio combination of 2000 of companies still listed.

Company                          Problem                  Change since
                                                             1 Jan (%)

QXL ricardo                      Dotcom misery                   -97.5
Moneyextra.com                   Dotcom misery                   -96.1
Danka Business Systems           Approaching bankruptcy          -95.9
Semple Cochrane                  Fundamental accounting errors   -93.1
Property Internet                Dotcom misery                   -92.9
Wilink.com (formerly Knutsford)  Speculative fever subsides      -91.7
DCS                              Numerous profit warnings        -91.3
CapitalTech                      Dilutive acquisitions           -88.2
Character Group                  Massive stock write-offs        -88.9
Scotia Holdings                  Sole drug fails trial           -88.0

Overall, £10,000 spread equally into the above ten companies at the start of 2000 would now be worth just £695.

Where Next?

• Best sectors of 2000 Investment Strategies discussion board

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• Vote for the best article of the year
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