If The Markets Will Keep Falling – Which Stocks Did Well Last Time?
There's a lot of talk about the market's falling substantially. Some people such as Grantham, Jeremy Grantham, who said that the S and P could fall 50% from the peak peaks.
Let's test a hypothesis between the 1st of October, 2007, and the 1st of March, 2009, also known as the financial crisis, the S and P 500 fell over 50%.
The German Dax fell also 50% as did, for instance, the Indian stock market. This is just to say that those falls were coincidentally all 50%, despite the fact that those countries are quite different from each other and their listings are very different from each other.
The NASDAQ fell nearly 50%. It was about 47% down. And the footsie 100 fell 41%, barely any solace.
The Chinese 50 index fell 57%. My point being, if during those falling markets, you were thinking, there will be some geography you could hide in - you would be mistaken, which then begs the next question.
Well, actually, why don't we test? Did any of those companies actually rise in that period? Well, let's start off with the S and P 500 of the 500 companies on that today.
The only ones which are still, in the S&p500 and which were up - well, there's 12 companies.
Netflix. I'm not sure a lot of people will want to get into Netflix right now, but Netflix was up 70% during the paradigm mentioned from 2007 to 2009 AutoZone, Illumina, Advance Auto Parts, Ross Stores.
You could argue in a recession people not having much money meant Ross Stores would do well. Edwards Life Sciences, Walmart, again, consumer company, where you'd expect people who are on a budget to go to. Gilead Sciences, MasterCard, Church & Dwight, O'Reilly Automotive and Tyler Technologies.
You can see there were three automotive companies. Again, let's have a look at if these companies have something about them, which is peculiar to them doing well.
Well, it doesn't matter how they did back then. To some extent, let's just have a look. If they have good fundamentals right now, based on my value, growth income algorithm, the following have a seven, eight or nine.
They are AutoZone and MasterCard. You might say, well, you’re too stringent. Tell me about some sixes. Okay. Advance Auto Parts and Ross Stores.
Walmart is a six. So is Gilead Life Sciences. So is Church and Dwight Company. I'm not going to go below six because I tend not to.
Well, what about then a measure of valuation? Just add an extra column on there.
And also maybe give us some extra information about their cash flows. For instance, something that you particularly think will be important.
Well, let's do that. Let's add those two numbers and see of the companies that I mentioned what happens. Do any of them have a price earnings growth ratio below one?
Well, yes. Advance Auto Parts does currently, so does Walmart. So to Gilead Sciences and Tyler Technologies is pretty much at one.
What about cash return on capital invested? CROCI. Anything impressive?
Remember, I look at this metric because I'm looking for companies which are in the top quarter by cash return on capital invested the amount of cash they generate, because they tend to be the ones which can very often outperform over the long-term.
Well, AutoZone has a 36% cash return on capital invested in; Advance Auto Parts is 11%. Ross Stores is 12% Edwards Life Sciences, 20% and Giliad is 18.
Now many companies survived the market falls of 2007-9. If that happens again, we will have to be mindful of what happened, be picky in our stocks, sometimes be willing to hold cash, and other times hold through the falls too.