4 Treasures From the Great “Dash for Trash” Rebound of 2009: American Express Company (AXP), General Growth Properties Inc (GGP), Ford Motor Company (F)

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The financial crisis ended — at least where the markets are concerned — four years ago. But some people couldn’t believe it was over. On the way back up, they warned that it was a garbage rally, a sucker’s game that would soon take adventurous investors to the poorhouse. Pundits and analysts pointed to dire financials and warned that soaring speculative selections might soon go the way of the dodo.

Plenty of stocks did go belly-up. But an elite few not only survived, but they thrived — producing outsized gains that have made the Dow Jones Industrial Average (Dow Jones Indices:.DJI)‘s four-year double look like pocket change. Make no mistake: These were some incredibly risky stocks to chase in the dark days of 2009, as you’ll soon see from a few eye-popping then-and-now financial comparisons. Did you listen to the doomsayers and sit on the sidelines, or did you jump in with both feet, not knowing when (if ever) you might touch bottom?

American Express Company (NYSE:AXP)Sucker’s-rally stocks that soared
The Dow bottomed out on March 9, 2009, after peaking in October 2007, and it’s since recovered to set fresh all-time record highs. In the four years since that day, the index has gained 120%, which increases to 146% if its components’ dividends are added to the calculation. That’s not bad, but it can’t hold a candle to these “garbage stocks” that turned out to be diamonds in the rough. Each has returned a minimum of 500% since the end of the financial-crisis crash, and some have recorded gains well in excess of 1,000%:

Stock Total Loss From Peak to Trough (2007-2009) Market Cap at End of Crash Total Return Since End of Crash
Newcastle Investment Corp (NYSE:NCT) 98% $16.36 million 4,350%
American Express Company (NYSE:AXP) 83% $12.34 billion 555%
General Growth Properties Inc (NYSE:GGP) 99% $98.81 million 5,630%
Ford Motor Company (NYSE:F) 79% $4.20 billion 666%

Source: YCharts.

What a wild ride. Let’s see how these companies have performed on a variety of metrics, both before and after the crash, to get a better understanding for why their stocks were so hated then — and why they’ve since proved the doubters wrong.

What happened to Newcastle?

Trailing-12-month earnings per share in 2009: ($56.81)
Most recent TTM earnings per share: $2.94
Debt-to-cash ratio in 2009: 105.3
Most recent debt-to-cash ratio: 8.0
Total return from start of crash to today: (14%)

On June 11, 2009, a Seeking Alpha blogger said:

“Non-recurring expenses during the last two quarters … reflect the mark-to-market valuation of securities, many of them the toxic subprime mortgage securities so well documented in the media, turning out to be quite toxic indeed. [This] has turned a healthy, albeit highly leveraged, balance sheet, into one … poised to feel the cost of the recession in the form of delinquencies at levels which continue to rise precipitously, year over year.”

When this article was published, Newcastle had already gained 145% from the Dow’s low point.

Mortgage REIT Newcastle took an incredible loss — 65 times its total market cap — as a result of a business model reliant on commercial real estate debt and mortgage servicing. However, the slow real estate recovery has also helped Newcastle climb out of a deep hole, and a number of crafty financial deals also boosted the company’s bottom line since 2009. Newcastle’s trailing-12-month net income of $429 million is almost 250% higher than its result just before the crash started, which is impressive considering the purported profitability of pre-crisis mortgage businesses.

What happened to American Express Company (NYSE:AXP)?

Trailing-12-month earnings per share in 2009: $2.32
Most recent TTM earnings per share: $3.89
Debt-to-cash ratio in 2009: 3.2
Most recent debt-to-cash ratio: 2.7
Total return from start of crash to today: 14%

On July 23, 2009, James Cullen of CollegeAnalysts said:

After falling below $10 per share in March, American Express Company (NYSE:AXP) stock has almost tripled as part of the broad rally in the stock market. This has led many to question if the stock has become overvalued, especially as economic data continues to indicate weak consumer spending. … Rising unemployment has led to greater defaults on credit cards; after suffering losses on fewer than 2% of loans in parts of 2006, American Express Company (NYSE:AXP)’ current loss rate is in excess of 10%.

At this point, American Express Company (NYSE:AXP) had already gained 183% from the Dow’s low point.

American Express Company (NYSE:AXP) has been the Dow’s best performer since the end of the crash. It’s also among the strongest of major American financial institutions, according to the latest Federal Reserve stress tests. Even under assumptions that the economy would fare worse than it did during the financial crisis, American Express Company (NYSE:AXP) managed to resist the hypothetical monster losses faced by most large banks. Its most recent earnings offered plenty of reasons to relax and hold on for the ride — revenue was up, return on equity was strong, and there’s lots of excess cash to cushion against any decline.

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