Are the worst performing stocks of the S&P 500 ready to rise in 2021?

Are the worst performing stocks of the S&P 500 ready to rise in 2021?

Our economy was hit by an unprecedented blockade in 2020, with the unemployment rate rising to nearly 15% in April Stock market It decreased nearly 30% in about the same time. Somewhat surprisingly, the broader stock market recovered by December, With th Standard & Poor’s 500 15.5% return for the year.

While the S&P index provided overall positive returns, many stocks within the index experienced significant losses. Among the worst performing stocks throughout 2020, they were concentrated in the cruise lines and conventional energy sectors. Could these sectors and their stocks see a boom in 2021? lets take alook.

Oil leakage

The 10 worst performing stocks in the S&P 500 for 2020 contained a long list of oil and other conventional energy stocks. Including Occidental Petroleum Corporation (New York Stock Exchange: OXY)And the Marathon Oil Corporation (New York Stock Exchange: MRO)And the Diamondback Energy (Nasdaq: FANG)And and ONEOK (New York Stock Exchange: Okay) – All of them lose about 50% of their own values ​​over the course of the year. This should not be surprising, as demand for transportation and travel has fallen sharply, affecting the need for oil and other traditional fuels. Moreover, the supply levels continued, adding to the decline in inventories.

While it is reasonable to expect travel to recover steadily throughout the year, the traditional energy industry faces significant competition from cleaner companies. More sustainable companies. Many investors, especially from the younger generations, They have moral concerns With investment in any business that harms the environment. When we think of companies that have the potential to grow further in the future, the companies that promote dependence on fossil fuels tend to be at the bottom of the list. Stocks will likely recover in 2021, but don’t expect too much of it as long-term buy and hold.

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Cruising at a loss

The cruise industry has suffered as much as it has in 2020, with the Norwegian Cruise Line Holdings (New York Stock Exchange: NCLH) And the Carnival Cruise Lines (New York Stock Exchange: CCL) Both have lost more than half of their respective values. It turns out that people are not claiming close dwellings on a separate ship when the world is in the midst of a respiratory pandemic. I’m not a clairvoyant, but it makes sense that without an overhaul of the industry and massive new sterilization methods – combined with public procurement – most cruising companies are waiting for choppy waters.

CCL Data by YCharts

Less encouraging is that rolling out the vaccine took much longer – and is much more complicated – than originally anticipated. Moreover, it was just convincing the public that vaccines were a tough job. Given that these companies took heavy losses and incurred large debts to continue operating, I will not feel confident about the recovery in 2021. It does not mean that they will never recover, but you will be hard-pressed to find an industry trapped right now.

A man with a sword fights virus particles.

Image source: Getty Images.

Don’t worry if they don’t recover

The simple beauty of the S&P 500 lies in its self-cleansing nature. If the value of the company decreases to the extent that it no longer qualifies for inclusion in the index, it will be replaced. In all likelihood, it will be replaced by a faster growing company with better long-term prospects that justify its standard inclusion. This is another reason why holding the same index for extended periods is more likely to result in more stable performance than if you were constantly trying to predict winners the following year.

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Instead of analyzing individual stocks within specific sectors, you might consider a buy-and-hold approach to a few large, low-cost markets Index funds (Like the S&P 500 Index Fund) covering the global equities landscape. This approach is likely to save you a lot of time, effort and mental energy, and as was the case in 2020, it provides investors with a solid return.

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