When Michael Ray said he wasn’t afraid of the cascading stock market last year, he was relatively satisfied that most of the stocks he selected had been sufficiently beaten down by misfortune, poor performance, or other factors, and that they had reached a temporary low point. The vice president and head trader for Legg Mason Funds in Baltimore uses an investment strategy that seeks to capitalize on stocks that have fallen — buying solid companies when they’ve suffered from bad news, hoping to ride them on the way back up. But who could have predicted that the Sept. 11 attacks and the continuing corporate accounting scandals would hurt investor confidence so dramatically?
Lagging investor confidence certainly hurt Ray’s Private Screening picks. All of his selections have fallen since last year. Ray’s picks lost 30.84% over the 52-week period from July 6, 2001, to July 5, 2002. By comparison, the Standard & Poor’s 500 index fell 16.93 % and the Dow Jones industrial index fell 8.52% for the same period. Even with the loss, Ray emphasizes that over a period of two to five years, his selections will recover as expected.
Amazon.com (Nasdaq: AMZN) lost the least for Ray. As he predicted, Amazon became cash flow-positive this year, and its sales have stayed consistent due to bargain-hungry consumers. Even still, the stock took a slight loss of 0.39%, from $15.27 to $15.21.
The other companies that Ray chose continued to struggle in this turbulent market. Ford Motor Co. (NYSE: F) lost 33.12% of its stock value since Ray recommended it last year, dropping to $15.69 from $23.46. The company had just come off of the much-publicized Explorer-Firestone tire scare, only to get caught up in bad economic times that have consumers putting off high-end purchases.
Ray’s pick of Kroger Co. (NYSE: KR), the nation’s largest food retailer, was intended to be a defensive play (People have to eat during bad times, right?), but it still lost ground. Kroger lost 20.65% since last year, going from $25.47 per share to $20.21.
Last year, Ray felt that J.P. Morgan Chase & Co. (NYSE: JPM) would recover with the market psychology. Since the psychology has gone south, so has the financial services company’s stock price, dropping 23.82% from $42.78 to $32.59.
Ray’s final selection, Corning Inc. (NYSE: GLW), has been brutalized over the last two years. The fiber optics company dropped from $15.13 to $3.60 — 76.21% since Ray’s recommendation. Now that’s some bad news to recover from.