This Year's Value Creators and Destroyers
A look at who created and destroyed the most value in the past six months, by market cap.
The first half of 2007 was a roller coaster. After dropping 3.5% on February 27, the largest loss in one day since the 9/11 tragedy, the S&P 500 Index roared back to life and now sits 7.3% above where we started the year. As we've done in the past, we've examined the dollar changes in stock market values to derive our value creators and destroyers for the year. To figure the market cap for both Dec. 31, 2006, and June 21, 2007, we took the number of shares outstanding at the end of 2006, adjusted for any splits, and multiplied it by the market price at both dates.
There are always problems with these types of screens, and knowing the potential weaknesses is important in interpreting the results. Using our methodology, we have eliminated market capitalization gains solely from share issuance, including stock option exercises and acquisitions, leaving only what shareholders as of Dec. 31, 2006, would have experienced if they held onto the stock. If an acquisition was dilutive to the existing shareholders, it is reflected in the numbers. However, this approach can overstate the market cap slightly when companies buy back shares. If share buybacks exceeded 10% of shares outstanding, we eliminated the company from our screen so as not to skew our numbers too greatly. In addition, our numbers have a survivorship bias, so any companies that were de-listed due to bankruptcy or other financial problems are not reflected in our numbers. Finally, as a result of looking at total market capitalization, the results are biased toward large-cap stocks.
|Gains and Losses by Market Capitalization|
Market Cap on
|Market Cap on |
|Mega (>$100 billion)||4,988,954||5,214,199||225,245||5%|
|Large ($10-$100 billion)||7,602,257||8,231,373||629,116||8%|
|Mid ($1-$10 billion)||3,621,128||3,999,289||378,161||10%|
|Small ($100 million-$1 billion)||755,810||755,429||-381||0%|
|Micro (<$100 million)||42,922||38,311||-4,611||-11%|
Stock performance varied widely during the first six months of 2007. The obvious winner was the 10% change in mid-cap stocks. The loser, just like last year, was the micro-cap stocks, dropping 11% of their value after losing 22% last year.
Taking a closer look at the components tells a slightly different story: the larger the stock, the more likely the positive return. 76% of the mega-cap stocks created value during the first six months, while 69% of the mid-cap stocks created value. Only 50% of the small cap stocks created value, while less than half (42%) of the micro-cap stocks had larger market caps after six months. Despite following up the excellent performance in 2006 with a strong first half so far in 2007, we continue to see bargains among the giants and believe a company-by-company review will yield some excellent opportunities.
|Sectors by Market Capitalization|
| Market Cap on |
| Market Cap on |
| Change |
Financial services ranked dead last among value creators this quarter, increasing its market cap by less than 1% or only $4 billion. The industry was plagued with problems, with the subprime mortgage blowup causing firms like Novastar (NFI) to decline 65%, and an inverted yield curve and the looming question of overall credit quality hurting the banks. Citigroup (C) and Bank of America (BAC) combined to lose $26 billion of market capitalization during the quarter. On the flip side, when problems happen, Mr. Market gets emotional and often creates opportunities for investors; there are currently 24 financial stocks rated 5 stars, including Bank of America.
Jaime Peters does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.