Latest / Best of Business / Stephanie Batchelor: Milford Asset Management Analyst on the 'fallen angels' in the US markets

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Stephanie Batchelor: Milford Asset Management Analyst on the 'fallen angels' in the US markets · Best of Business

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  Speaker 2: Now.
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  Speaker 3: The US market may be up almost sixteen percent on
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  Speaker 3: the year, but get a load of this. Well known
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  Speaker 3: household names like Nike and Lulu, Lemon and Starbucks had
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  Speaker 3: a much tougher time. The entire consumer discretionary sector is
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  Speaker 3: up only four percent, with a growing number of so
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  Speaker 3: called fallen angels. Stephanie Bachelor is from Milford Asset Management. Hey, Stephanie, Hi, Heather,
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  Speaker 3: What exactly is a fallen angel?
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  Speaker 2: So, the term fallen angel was traditionally used to describe
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  Speaker 2: a bond that used to be investment grade but has
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  Speaker 2: since been reduced to essentially junk bond status, but you
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  Speaker 2: can also apply it to stocks. A company that has
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  Speaker 2: historically been seen as really high quality, usually with a
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  Speaker 2: share price, that continues to reach all time highs, but
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  Speaker 2: has since fallen significantly and is now out of favor.
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  Speaker 2: Was invested.
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  Speaker 3: Okay, So I've listed a number there that that are
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  Speaker 3: obviously examples. Why have they performed so poorly?
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  Speaker 2: Yeah, so there are lots of examples. A couple that
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  Speaker 2: you mentioned, the ath Leisure companies like Nike Lululemon. They've
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  Speaker 2: fallen significantly on concerns that they aren't innovating enough and
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  Speaker 2: they're losing market share to newer competitors. So from peak
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  Speaker 2: to trough, Nike's share price has fallen about sixty percent
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  Speaker 2: and Lululemon's about fifty percent. Then, in the beauty space,
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  Speaker 2: este Lord is down about seventy five percent, primarily due
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  Speaker 2: to very weak sales in China, and Starbucks is another
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  Speaker 2: brand struggling in China and its share price had fallen
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  Speaker 2: about forty percent.
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  Speaker 3: I mean, it's quite astounding how big those fools are
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  Speaker 3: given that they are household brands. What's next for these companies?
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  Speaker 2: Now?
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  Speaker 3: How do they get the investors to love them again?
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  Speaker 2: Yeah, So, usually we see one of two things. Either
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  Speaker 2: an activist shareholder gets involved. These are investors that buy
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  Speaker 2: a sizable stake in the company and then put pressure
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  Speaker 2: on management to make changes. So a recent example of
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  Speaker 2: this is Bill Ackman taking a stake in Nike, or
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  Speaker 2: CEOs leave or get replaced, and we saw a remarkable
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  Speaker 2: share price reaction to one of these situations. Recently, it
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  Speaker 2: was announced that the CEO of Starbucks would be leaving
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  Speaker 2: and would be replaced by the CEO of Chipotle. There's
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  Speaker 2: a Mexican food chain that's done extremely well. And so
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  Speaker 2: on the day that this was announced, Starbucks shares went
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  Speaker 2: up twenty five percent and Chipotla shares went down eight percent,
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  Speaker 2: So that market move was effectively a twenty seven billion
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  Speaker 2: dollar slap in the face for the Starbucks CEO and
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  Speaker 2: a twenty seven billion dollar pad on the back of
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  Speaker 2: the Chipotlo sea.
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  Speaker 3: Interesting, Okay, so in Video right, this is something we've
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  Speaker 3: been talking about just the last few days. What's going
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  Speaker 3: on here? And also is this an example potentially of
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  Speaker 3: something that's becoming a fallen angel.
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  Speaker 2: Yes, it's been a rocky few days for in Video.
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  Speaker 2: Over four days of trading, shares are down about fifteen percent,
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  Speaker 2: and that's wiped out about five hundred billion dollars of value.
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  Speaker 2: That's almost the entire value of McDonald's, Disney, and Uber combined.
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  Speaker 2: So it's a huge move. But shares are still up
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  Speaker 2: about one hundred and twenty percent over the last year,
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  Speaker 2: so certainly not a fallen angel. And there are a
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  Speaker 2: few things behind this move. So it started at the
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  Speaker 2: end of last week when in Video reported quarterly results.
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  Speaker 2: It was a strong result, but shares actually fell six percent,
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  Speaker 2: and that just shows how stretched investor expectations had become.
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  Speaker 2: Apparently there were even bars in New York live streaming
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  Speaker 2: the result, so that's almost the definition of a viral stock.
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  Speaker 2: And then overnight, in Video was down another ten percent
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  Speaker 2: as part of a broader stock market sell off, which
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  Speaker 2: had a number of factors that play, one of which
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  Speaker 2: was some weaker manufacturing data that tapped into investor fears
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  Speaker 2: around a growth slowdown in the US. And in Video
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  Speaker 2: actually fell a little bit more after hours on some
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  Speaker 2: news that the DOJ has issued a subpoena to in
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  Speaker 2: Video relating to an anti trust investigation. So lot's going on.
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  Speaker 2: But the last thing I'd call out is while the
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  Speaker 2: two percent moved down in the S and P five
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  Speaker 2: hundred overnight is significant, you have to put it into
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  Speaker 2: the context of the increased market volatility that we saw
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  Speaker 2: in August, with big swings both down and up. So
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  Speaker 2: last night's move is really just a continuation of that volatility.
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  Speaker 3: Stiffanie, thank you, I really appreciate your time. That's Stiffanie Bachelor,
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  Speaker 3: Milford Asset Management.
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