Market dogs on nose for a reason

SOME of Australia’s biggest business names are a long way from this year’s stockmarket record highs, and are stinging investors with shrinking share prices.

Almost 20 per cent of the nation’s largest 200 stocks have lost value over the past year, with some down more than one-third including AMP, energy giant AGL and former star The a2 Milk Company.

Buying sharemarket strugglers can be an opportunity to make money on the rebound, but investment analysts say picking potential winners is difficult.

“Catching falling knives can be a dangerous hobby,” Redpoint Investment Management CEO Max Cappetta said.

Shares in former top 20 stock AMP have dropped 38 per cent in a year, and are down 80 per cent over five years, and Mr Cappetta said while it looked like reasonable value it was “cheap for a reason”.

“AMP is in a state of transition and is still recovering, reputation wise, from the findings of the royal commission and subsequent turnover of both key staff and management,” he said.

AGL Energy and Origin Energy are also among the worst 10 performers on the ASX 200, suffering from the world’s transition to clean energy and lower wholesale energy prices as solar power generation surges.

“AGL looks to be in a worse position as it remains heavily reliant on coal,” Mr Cappetta said.

Portfolio manager Chris Conway, from investment newsletter Marcus Today, said AGL’s share price peaked at $28 in 2017 but was now near $8. “It’s not like it’s just had a bad 12 months – there’s four years of experience,” he said.

“You would have to be a brave soul to stand in front of that freight train. I wouldn’t touch it.”

Mr Conway said Origin had a better asset mix that was more focused on renewables, and other unloved stocks could become winners.

“There’s the potential to find a bargain within the dog basket – a lot of companies are under duress so try and identify opportunities,” he said.

Former market darling The a2 Milk Company is down 65 per cent, hit by rising competition, profit downgrades and Covid’s international border closures preventing Chinese students from bringing its milk powders home.

Four of the 10 worst performers were goldminers. “Gold is a safe haven, but no one has wanted safe havens as equity markets have been at record highs,” said Mr Conway, adding that several goldminers had high-quality operations and would bounce back.

Artificial intelligence company Appen suffered the heaviest falls, down 66 per cent, and Baker Young managed portfolio analyst Toby Grimm said the company had missed its earnings forecasts.

“That’s a watching brief – it could potentially have a significant rebound if they start delivering on some of their deferred projects,” he said.

Mr Grimm was less positive about AMP and AGL, and said investors could diversify by holding some unloved stocks.

“You don’t want to overdo the risk,” he said. “There’s outsized potential in getting in when there’s blood on the streets, but limit it to a small part of your portfolio.”