Even with declines on Monday, U.S. stocks are closing out a remarkably strong 2020. The S&P 500 has gained 28.5% so far this year, and the NASDAQ Composite has performed even better. On the whole, American equities, barring a disaster on Tuesday, should post their second-best year since 1997.
As noted in the space before, the rally has been both broad and deep. Nearly 80% of stocks with a market capitalization over $300 million are positive in 2019. Almost 20% of those stocks have risen at least 50%. But that still leaves a few names that have been left out of the rally.
Tuesday’s big stock charts focus on that group. Two of these stocks have declined so far this year, amid broad pressure on their respective industries. Another has gained less than 1%. But all three of late have shown support, which suggests at least some optimism heading into the New Year.
DuPont de Nemours (DD)
DuPont de Nemours (NYSE:DD) has been one of the most disappointing stocks of the past few years. In a complicated feat of financial engineering, chemical giants Dow and DuPont first merged into DowDuPont. DowDuPont then spun off the ‘new’ Dow Inc. (NYSE:DOW) and agricultural play Corteva (NYSE:CTVA) before renaming itself DuPont de Nemours.
If that wasn’t enough, DuPont this month announced it would combine its nutrition unit with International Flavors & Fragrances (NYSE:IFF). Yet, as the first of Monday’s big stock charts shows, none of that movement has created any shareholder value.
DowDuPont was a popular pick for sum of the parts upside, but DD stock is down 18% this year (adjusted for the spins). DOW stock has gained 9% since becoming independent, while CTVA is basically flat. The question heading into 2020 is whether the stock finally can stabilize:
- Technically, a double bottom around $62 does provide some hope. A Relative Strength Index of 39 isn’t quite in oversold territory, but it’s not far off. Monday’s 2%-plus decline doesn’t help the cause, but it’s possible that some investors were looking to book tax losses to offset gains elsewhere. Hedge funds may also want the disappointing stock off their books at year-end. There may be buyers willing to step in.
- Fundamentally, there is an attractive case here. Earlier this month, I highlighted both DD stock and IFF stock as 2019 losers that could be 2020 winners. The nutrition merger will give DuPont a cash payment of over $7 billion that can be used to pay off debt and buy back stock. And after the sell-off, DuPont stock trades at a reasonable 14.6x forward price-to-earnings multiple.
But this may be a stock that still has further to fall. The weekly chart still shows a persistent downtrend. End markets remain volatile, and earnings multiples across the chemicals sector usually are below those of the market as a whole. It’s possible investors are waiting for the calendar to turn to step into the decline here. But it’s also possible that DuPont stock will continue to disappoint in early 2020 as well.
Excelon Corporation (EXC)
Utility Exelon Corporation (NYSE:EXC) has had a disappointing 2019 as well. Utilities as a sector, as measured by the Utilities Select Sector SPDR Fund (NYSE:XLU), have gained 21%. EXC stock has risen just 0.62%. There are some reasons for the underperformance — but as the second of our big stock charts shows, investors of late have bet on an improved 2020:
- A multiple bottom has been established at $44 and Excelon stock has shown some strength in the last two weeks. Shares have cleared near-term moving averages as well. Utility stocks are usually much less volatile, so a huge breakout is unlikely. But, technically, EXC has a path to the 200-day moving average above $47, and then could challenge the top of a descending triangle pattern.
- There are two core worries here. Exelon is facing a federal investigation of its lobbying efforts in Illinois, a probe that may be linked to the sudden resignation of the company’s chief executive officer in October. In addition, Exelon’s nuclear business is waning: the company shut down its Three Mile Island reactor earlier this year. Both factors have pressured Exelon stock in recent months, and explain in part why shares have lagged the sector.
- That said, there’s some value here. On an earnings basis, EXC is one of the cheaper large-cap utility stocks in the market. A 3.2% dividend yield should be safe, and remains attractive in an environment where the 10-year Treasury bond yields less than 2%. Federal investigations are hardly welcome, but this is a company with a $44 billion market capitalization. Penalties relating to any untoward actions are likely to be relatively minimal in that context. There’s a case that the sell-off has gone too far. Some investors are acting on that case as 2020 approaches.
Cabot Oil & Gas (COG)
Shale exploration plays like Cabot Oil & Gas (NYSE:COG) have had a difficult 2019. Low oil and natural gas prices have hurt profits. The acquisition of Anadarko Petroleum by Occidental Petroleum (NYSE:OXY) was supposed to unleash a wave of merger activity in the sector. But OXY stock wound up hitting a 14-year low in November, potentially scaring off other buyers.
Despite the sector weakness, investors have tried to time the bottom in COG stock on a few occasions in the second half of 2019. At the moment, that looks like a potentially dicey bet:
- COG stock is fading again after bouncing off support at $16 earlier this month. That fade re-establishes the bearish descending triangle pattern. Near-term moving averages need to provide some help to the stock; otherwise, COG is testing $16 again, and this time around, support may not hold.
- On an earnings basis, Cabot Oil & Gas stock does look somewhat cheap, at a little over 10x 2019 EPS estimates. But that multiple hardly is out of line for shale plays. Those same analysts project a roughly 25% decline in profits next year. And a core cyclical worry hangs over COG stock and much of the shale sector. If West Texas Intermediate crude prices are barely holding $60 in a booming economy, what happens when the macro picture inevitably reverses?
- It’s certainly possible that COG shares improve in 2020, after a 23% decline so far in 2019. That said, caution seems advised, at least in the early going. The shale boom has delivered for consumers. But whether it’s explorers like Cabot or even services providers like Halliburton (NYSE:HAL), it hasn’t done so yet for investors. It seems too early to believe that 2020 will be notably different.
As of this writing, Vince Martin has no positions in any securities mentioned.