Could this year’s biggest FTSE 250 fallers be 2019’s biggest winners?

These FTSE 250 (INDEXFTSE:MCX) stocks have fallen 65% or more. Is it time to load up for 2019?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In a poor year for equities generally, the mid-cap FTSE 250 has been the worst performer of London’s main indexes. It’s down 14% year to date, compared with declines of 12% for the blue-chip FTSE 100 and 11% for the FTSE SmallCap.

The three FTSE 250 stocks that have fallen most have lost in excess of 65% of their value. Fashion retailer Superdry (LSE: SDRY) is down 66%, holidays group Thomas Cook (LSE: TCG) has slumped 75% and pharmaceuticals firm Indivior (LSE: INDV) has shed an incredible 80%.

Clearly, these three stocks would deliver massive gains for new investors today, if they were return to their former levels. Could it be time to load up for a recovery in 2019?

Market darling

The Superdry share price hit a new all-time high in the first week of January. However, it’s been downhill ever since, with the decline only magnified by a high valuation as a market darling to begin with. It was trading on a forward price-to-earnings (P/E) ratio of 22 at the start of the year. Today, the forward P/E is just 8.3.

With the company pinning a profit warning in October on unusually warm weather, and with co-founder Julian Dunkerton, who left earlier this year, now agitating to rejoin the business, Superdry fans may find it easy to envisage a return to the glory days. I’m not convinced. The company’s underlying operating margin has declined each and every year since 2013, pointing to longer-term issues than the recent spell of problem weather. I’m uncertain as to when and where the falling margin will bottom out, so I’m avoiding the stock for the time being.

Double profit warning

Things have gone from bad to worse for troubled travel giant Thomas Cook this year, with the company issuing a second profit warning just two weeks ago. Weather was again the problem. In contrast to Superdry, which at least has a decent balance sheet and well-covered dividend (yielding 4.6%), Thomas Cook reported net debt of £389m (up from £40m a year ago) and suspended this year’s dividend.

The company said it remains compliant with its banking covenants, but I view the level of debt as a huge risk in what is a highly competitive low-margin industry. I’m not tempted by a forward P/E of just 4.1, and see this as a stock to avoid, due to the severity of the downside risk of debt spiralling out of control.

Suboxone setback

Indivior, which specialises in the treatment of opioid dependency, has been fighting a losing battle this year in trying to protect its biggest-selling drug, Suboxone Film, from generic competition in the US. It’s reckoned Indivior’s branded product could lose up to 80% of its market share within months of the launch of a generic rival. And indeed, City analysts have pencilled in an 80% collapse in earnings for calendar 2019, such is the company’s heavy reliance on Suboxone.

Indivior reckons it has a strong pipeline of new product candidates. However, uncertainty in this area (it has reported slower-than-expected commercial uptake of one recently-launched product) and a relatively high forward P/E of 19.7, lead me to conclude this is another stock to avoid.

Unfortunately, I haven’t been won over by the recovery potential of this year’s three big FTSE 250 flops. However, I’m far more optimistic that some of the biggest FTSE 100 fallers could be among 2019’s biggest winners.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »