A FTSE 100 bull market is officially here. The index has gained around 23% from the depths of the market crash. Some FTSE 100 stocks have risen a lot more than the market. Others have performed worse, with some of them actually falling in value since the market bottomed on 23 March. I have crunched the numbers and can reveal the 10 worst-performing stocks during this nascent bull market.
The table below shows that the worst performers (compared to 23 March, as of the end of last week) do have something in common. Four of them are banks, most have cut their dividends.
|Company||ICB Sector||ICB Subsector||Share price loss|
|Rolls-Royce||Aerospace and Defense||Aerospace||-14.57%|
|J Sainsbury||Personal Care, Drug and Grocery Stores||Food Retailers and Wholesalers||-8.15%|
|Land Securities Group||Real Estate Investment Trusts||Diversified REITs||-5.62%|
|International Consolidated Airlines||Travel and Leisure||Airlines||-5.59%|
|Royal Bank of Scotland||Banks||Banks||-4.42%|
|BT||Telecommunications Service Providers||Telecommunications Services||-2.62%|
|Centrica||Gas, Water and Multi-Utilities||Multi-Utilities||-0.91%|
Banks make money by borrowing at low rates and lending at higher rates. Interest rates have been low, are even lower now, and will remain so for some time to come. This doesn’t give the banks much room to manoeuvre, so their net interest margins are measly. Add to this the fact that banks have provisions for massive loan losses in their books and have been forced to cut dividends, and bank stocks are unsurprisingly struggling. HSBC is the worst-performing stock in the FTSE 100 bull market. It has the same issues as the other banks, but is also undergoing a complex and costly restructuring to pivot towards Asia, which could not have occurred at a worse time.
Investors in J Sainbury will have found its recent earnings report, with flat revenue and a small decline in profits, uninspiring. The fact that Tesco has declared it will pay a dividend, while Sainbury’s shareholders have to wait until the autumn for a decision, will have also been noted. Both BT and Centrica have also cut their dividends.
Land Securities is suffering from a fall in rent collections, particularly from its retail tenants whose stores have been closed for over two months. It is not confident about collecting on the arrears.
Not cleared for take-off
Airline passenger numbers have fallen dramatically, with the industry itself worrying a return to 2019 levels is years away. International Consolidated Airlines, the owner of British Airways, makes its money from long-haul flights. These will probably be the last to fill back up. Shorter routes, between countries at similar stages and levels of coronavirus outbreaks, will fill up faster. Premium business travel, important to British Airways, might never get back to normal. If video conferencing works ok, businesses won’t be keen to spend money putting employees on flights, especially in the nicer seats.
Rolls-Royce makes and services engines for planes. Existing engines are not requiring maintenance, repair and overhauls as much as usual. Only 250 of the expected 450 new engines will be delivered this year. Rolls-Royce’s fate is much the same as the airline industry, even if its defence business is doing well. It has also cut its dividend.
When FTSE 100 income stocks like these don’t pay dividends, interest wanes and share prices underperform. For the long-term investor though, there might be a bargain lurking in the gloom of the worst-performing stocks list, if the dividend cuts will make survival fairly certain and support growth in the future. I recently bought BT for these reasons. Centrica needs to effect a turnaround and the coronavirus crisis might be an opportunity to reset its dividend policy to support this.
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James J. McCombie owns shares in BT and Lloyds. The Motley Fool UK has recommended HSBC Holdings, Landsec, Lloyds Banking Group, Standard Chartered, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.