Winner and loser stocks February 2019

After the strong comeback of the stock market in January, the positive trend continued in a slightly weaker form in February. The S&P 500 rose by 2.9% in February, while the index rose by 7.9% in January after a very disappointing December 2018.

Typical loser stocks: supposedly high dividends without sustainable profits

While in January the price movements of the winning stocks were clearly stronger than those of the losing stocks, these are now balancing each other out. The dominant motive for the upward price movements in January was the sharp rise in the stock market. In February, on the other hand, the strongest price movements were determined by the earnings season. The stock of Kraft Heinz, which is popular among dividend investors, lost a whopping 30% of its value in February after poor results.

Kraft Heinz stock – missing solid long-term profit growth

Also, the German TUI’s stock collapsed by almost 30% after a profit warning.

TUI’s stock – missing solid long-term profit growth

Leoni, another German company, is the third loser of the month with a capital loss of just under 26%, also delivered poor figures and even announced the cancellation of the dividend for the last business year.

Leoni’s stock – missing solid long-term profit growth

Two things are striking about the top three losers of the month. First, they are all dividend stocks with a very high dividend yield – at least paper-wise. Kraft Heinz and TUI, for example, paid out more than 7% of their dividends in the last 12 months, while Leoni, prior to the cancellation of the dividend, received an impressive dividend yield of 5.7%.

Secondly, all three stocks lack positive long-term profit growth. This can be spotted on DividendStocks.Cash both graphically (as seen the 3 screenshots above) and by self-calculated metrics, which make the long-term profit growth visible.

The three top loser stocks have missing stability of earnings and cash-flows in common

The stability metrics range from -1 to +1, whereby a promising stock for a long-term investment should reach a value of at least +0.7, even better +0.8. None of the three stocks even comes close to this value. Also striking are the extreme values of the compound annual growth rates, which range from 60% decline to several hundred percent growth. Such extremes are typical for companies with a poor earnings stability, where profits in one year are followed by losses in the next and vice versa.

Winner stocks without substantiality

Of course, stocks with a lack of earnings stability can also generate capital gains. In February two examples are the stocks of Bilfinger and Ceconomy, which each gained more than 20% this month. However, investors should not be blinded by short-term success, because over a longer period of time, investments in either of these stocks brought most investors severe losses.

Conclusion

If you want to know which winning stocks are winners for long-term investors, you cannot avoid looking at the long-term profit growth of the company. This is exactly what DividendStocks.Cash does.