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 poor house. 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; they thrived — producing outsized gains that have made the Dow Jones Industrial Average‘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?
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 at least 1,000% since the end of the financial crisis crash, and some have recorded far greater gains than that:
|Stock||Total Loss From Peak to Trough (07-09)||Market Cap at End of Crash||Total Return Since End of Crash|
|International Paper Company (NYSE:IP)||(86%)||$1.88 billion||1,070%|
|Tenneco Inc (NYSE:TEN)||(97%)||$46.18 million||3,670%|
|Dana Holding Corporation (NYSE:DAN)||(98%)||$19.97 million||8,890%|
|Sirius XM||(96%)||$525.25 million||2,090%|
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 International Paper?
Trailing-12-month earnings per share in 2009: ($3.05)
Most recent TTM earnings per share: $1.80
Debt-to-cash ratio in 2009: 9.8
Most recent debt-to-cash ratio: 7.4
Total return from start of crash to today: 67%
On July 7, 2009, The Motley Fool’s own Todd Wenning wrote:
Indeed, the futures of a number of well-known but heavily indebted American institutions were in serious doubt. International Paper Company (NYSE:IP) … [has] naturally been under tremendous pressure to shore up capital and responded by selling assets, refinancing existing debt, and … slicing the dividend by 90%. Since March 9, International Paper Company (NYSE:IP) shares have gained 237%. [This is just one] example of the recent “dash to trash” in this market rally.
International Paper Company (NYSE:IP) has since addressed all of these problems. From 2009 to the start of 2012, the company reduced eliminated a quarter of its debt and more than doubled cash on hand. Its dividend also rose by 400% during this period of recovery. International Paper’s buyout of Temple-Inland greatly reduced cash on hand and produced a slight increase in debt as well, but the company continued to boost its dividend, which is now more than 1,000% higher in raw payout terms than it was during the initial rebound. Paper may not be much of a growth industry, but keep in mind that at its lowest point, the company was still generating $25 billion in revenue and had earned more than $1 billion in net income in 2007, before the crash began.
What happened to Tenneco?
Trailing-12-month earnings per share in 2009: ($8.95)
Most recent TTM earnings per share: $4.50
Debt-to-cash ratio in 2009: 11.5
Most recent debt-to-cash ratio: 4.8
Total return from start of crash to today: 27%
On Sept. 17, 2009, Thomas Ryan of Doddsville Investments wrote on Seeking Alpha:
It has become increasingly clear to us that the underlying fundamentals of both the U.S. and world economy do not justify the price increases in equities. Money is flowing directly from the world’s biggest banks into the stock and commodity markets. Similar to when the Internet bubble was inflating, prices on many stocks have lost all connection to the underlying earnings power of the business. … Tenneco Inc (NYSE:TEN) made the top 10 list [of growth since the bottom] with a gain of 1,770%, while losing [this calculation includes another “garbage rally” stock not mentioned here] a combined $1.87 billion. … [T]here is still a significant chance that some or all of the companies [on the author’s list] will declare bankruptcy as well during the next year.
Nearly all of Tenneco Inc (NYSE:TEN)’s growth occurred by 2011 — it’s actually 13% lower today than it was at the start of that year — but this is symptomatic of many auto stocks, which staged a strong recovery once it became apparent that the government wasn’t going to let the industry implode.
Tenneco’s earnings per share have continued to increase another 300% since returning to profitability in 2010, and its single-digit P/E is near 10-year lows. You might have missed this rocket, but automotive stocks are notoriously cyclical — there might be another megamultibagger in Tenneco’s future after the next crash.
What happened to Dana Holding?