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April Large Cap Losers

Posted: May 04, 2009 11:55 AM by Eric Fox

Tickers in this Article: COCO, ESI, GENZ, BMY, ABT, ADM, APOL

The April 2009 large cap loser list was comprised mostly of those stocks considered safe havens, as investors continued the shift toward higher beta stocks. Three of the five losing stocks are in the healthcare sector, and although each had its own specific issues in April, the stocks may have suffered from the investor shift from sectors perceived as "safe" with recession-resistant revenues to sectors that might benefit from an economic recovery. (Beta says something about price risk, but how much does it say about fundamental risk factors? Read Beta: Know The Risk.)

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Falling Education
Apollo Group (NYSE:APOL) had been the last year's darling of the momentum crowd, but fell 19% in April. The company reported its quarter and beat guidance on revenue and earnings, but said that bad debt expense would increase in future quarters due to the recession. Education stocks were one of the few safe havens during the bear market, but this has changed during the last month or two as both ITT Educational Services Inc. (NYSE:ESI) and Corinthian Colleges Inc (Nasdaq:COCO) are down more than 20%.

The appearance of Archer-Daniels-Midland (NYSE:ADM) on the list confirms that analyst ratings still matter. The company was downgraded to a "sell" by an analyst at Citigroup (NYSE:C), citing deteriorating fundamentals in some of its business lines. The stock was down 11.5% in April. Its hard for me to believe that analysts still have this kind of influence, particularly considering the scandals of the last few years.

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Falling Pharmaceuticals
Abbott Laboratories (NYSE:ABT) was also down 10.18%. The company beat earnings guidance when it reported its first quarter several weeks ago, but the investment community focused on its slipping sales for the drug Humira, which is used to treat tuberculosis and other ailments. Sales were up a strong 17%, led by international growth, but apparently this was below expectations. A major risk in investing in these stocks is over dependency on a single drug.

Genzyme (NYSE:GENZ) was down 10.2% after the company missed earnings and revenue guidance. The company had problems with manufacturing issues as it sought government approval to market a larger version of its Myozyme drug in the U.S.

Both Genzyme and Abbott Labs saw double-digit growth in earnings in the quarter, but this strong earnings growth was not enough to satisfy investors.

Profit Taking
Bristol Myers (NYSE:BMY) had a great March, up by about 30%, so some profit taking was due in April. The company also reported earnings late in April and disappointed the Street on revenues. Sales of Erbitux, a drug used to treat cancer, saw sales fall by 10%. Bristol Myers ended up down 11.15% in April. (Learn how to find a healthy pharmaceutical investment in a market full of weak drugs, read Measuring The Medicine Makers.)

The Bottom Line
As the stock market rally continued into its second month, old favorites that held up during the relentless bear market of 2008 began to crack due to a combination of aggressive expectations and sector rotation. It's anyone's guess if this trend will continue or if this is just a bear market rally.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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