It’s been two months since the S&P 500’s nightmarish crash low on March 23. And some brave investors doubled their money on bold bets.
Eight S&P 500 stocks, mostly energy plays like Apache (APA), but also financial Lincoln National (LNC) and consumer discretionary Lennar (LEN), doubled in value from the depths of the coronavirus stock market crash. Sounds impressive, right?
But most of these stocks are more cautionary tales of the dangers of buying beat-up, value stocks. While all the stocks topped the S&P 500’s 32% rise from the lows, all but Lennar are laggards with rock-bottom IBD Composite Ratings.
Most of these bounces still leave the stocks behind the S&P 500’s 8% decline this year so far, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Investors are much better off with leading growth stocks like those on Leaderboard.
“The S&P 500 is up 32% from its March lows as signals that economic activity likely bottomed out in April grow,” said Bespoke Investment Group. “That doesn’t mean the economy is off to the races, but for now it seems as though the deepest part of the contraction has passed.”
S&P 500 Energy Sector On A Slippery Slope
The near shutdown of planes, automobiles and factories for months put oil prices into free fall until they bounced a bit in May. And the S&P 500 energy sector has taken a ride, too.
The Energy Select Sector SPDR ETF (XLE) jumped 64.6% from the March panic low. That’s nearly twice the 38.8% two-month jump by the next best sector, the Consumer Discretionary Select Sector SPDR ETF (XLY).
And that sounds impressive until you realize the energy sector is still down 35% this year. That’s by far the worst showing of any of the 11 sectors in 2020.
Energy reflects the fortunes of the price of oil. And crude, while up 43% in price in May, is still down 44% this year. And energy companies’ profit isn’t seen making a meaningful rebound anytime soon. S&P 500 Energy profit is seen dropping more than 100% this year, says FactSet.
S&P 500 Miracle Bounce: Apache
At first glance, Apache’s 180% jump from the March 23 lows looks impressive. It’s the largest two-month jump of any S&P 500 stock.
But the low IBD Composite Rating of 6 shows this is nothing more than a bounce from lows. The stock is still down 53% this year — even after nearly tripling from the March bottom.
And the fundamental picture isn’t much better. Apache is expected to lose money in each of the next three years. It’s not coming from strength, either. The company only managed to break even on an adjusted per share basis in 2019.
And that’s why many investors are trying to avoid energy stocks.
Lennar Shows An S&P 500 Homebuilding Glimmer Of Hope
Homebuilder Lennar is the only S&P 500 stock with a 90 IBD Composite Rating or higher whose stock has doubled from the low.
Following its 101% jump from the bottom, Lennar is now up nearly 6% for the year. Many homebuilders, scarred from the housing-led implosion of 2008, came into this recession prepared, with plenty of cash and manageable debt.
Lennar had enough cash to operate more than a year if there was a complete shutdown, says Raymond James analyst Buck Horne in a report issued in late March. That gives it the ability to look past 2020. Lennar’s profit is still seen dropping 20% this year, but rebounding 17% next year.
Additionally, mortgage rates continue to scrape all-time lows. That makes homes more affordable. “For the fourth consecutive week, the 30-year fixed-rate mortgage has been below 3.3%, giving potential buyers a good reason to continue shopping even amid the pandemic,” said Sam Khater, Freddie Mac’s chief economist. “As states reopen, we’re seeing purchase demand improve remarkably fast, now essentially flat relative to a year ago.”
Investors, like usual, are many steps ahead.
Biggest S&P 500 Jumps From March 23 Coronavirus Low
|Company||Ticker||Stock % Bounce From March 23 Low||YTD Stock % Ch.||Sector||Composite Rating|
|SPDR S&P 500||SPY||32.3%||-8.3%||Index ETF|
Source: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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