Checking the half-time scores on top- and worst-performing stocks

 

Simon Edelsten

This article was originally published in the Financial Times

“It’s a game of two halves” — the late, legendary centre-forward Jimmy Greaves is credited with coming up with one of the most hackneyed sporting tropes of modern times.

The seemingly self-evident phrase is meant to underline how a team that dominates the first half of a football match can often struggle in the second.

Considering how many times pundits have said it over the years, you might be surprised that over the past three Premier League seasons, when a team is winning at half time, they only go on to lose about one in 10 times.

Momentum is a powerful force in football — and it’s the same in investing.

Here are the half-time scores on equity markets midway through this year to see who’s ahead. And there are some surprising results.

The numbers show performance expressed in sterling and include dividends from January 1 to June 30. What most stuck out to me is how many blasts from the past there are among the leaders.

Share price movements are generally talked about in local currencies, but look more closely. The dollar’s fall has been a 9 per cent drag for sterling holders of US stocks. Meanwhile, the rise in “safe” currencies, such as the Swiss franc, has brought two Swiss companies — Nestlé and Novartis — into the list of leaders.

Many market pundits suggested in January that the Magnificent Seven stocks were overrated. With Amazon.com, Alphabet, Apple and Tesla in the list of laggards, this was a good call. In recent years the US equity market has valued a few stocks highly for their “genius” leadership. It seems the geniuses at Tesla and Apple failed to factor in President Trump’s policies — ironic, given that Tesla’s worked for him!

The performance of this Less Magnificent Four contrasts with the three most plugged into AI hopes: Microsoft, Nvidia and Meta. Only Meta makes the list of leaders, but, with double-digit returns, Microsoft and Nvidia investors won’t be complaining.

Looking more closely at the leaders, Palantir is a Maga darling. Multi-billionaire Peter Thiel, founder of PayPal and friend of JD Vance, has created a company that uses advanced computing to solve problems — from fighting wars to making the NHS more efficient. It trades on an incomprehensible valuation of $330bn but with sales of just $2.87bn and half a billion in profits last year. Yes, it’s growing quickly — revenues were up nearly 40 per cent in the first three months of the year — but it will need to grow at least that fast for years to come to catch up with its share price.

Some stock market veterans make a surprising appearance in the list of top performers. Maybe the Magnificent Seven stocks’ stumbles have encouraged investors to look further afield. IBM and Oracle show that “old technology” is benefiting from the addition of AI to the systems they have embedded in many companies. German software company SAP is another AI winner.

Meanwhile, Philip Morris has successfully tackled the decline in cigarette smoking, with innovations such as IQOS (heating tobacco rather than vaping liquids) and nicotine pouches.

General Electric has been restructuring its businesses for decades, culminating in splitting the company into aerospace, healthcare and renewables divisions two years ago. GE Aerospace has performed well, as engine sales and servicing have improved, though renewables business GE Vernova has performed even better, despite US climate-change scepticism.

Among the losers, I am unabashed at owning UnitedHealth. Over the previous two decades its shares were among the best performers in funds I managed. Medical insurance is always contentious and political. The cost of providing high-quality healthcare to an ageing population is growing faster than our economies. This can be paid for involuntarily through tax or through insurance premiums.

When a stock I hold does badly I ask myself whether the world would be worse off without it. I don’t see how the US would cope without UnitedHealth. If Robert F Kennedy Jnr’s healthcare plans raise costs for insurers that’s likely to come through in higher premiums or lower benefits.

Looking ahead, the main factors affecting the first half seem likely to continue — tariffs and a weak dollar potentially raising US inflation, along with sluggish European growth. Governments everywhere have lots of bonds to issue, which will create problems for middle-of-the-road equities. You either need plenty of growth or very good value.

For investors, the equivalent phrase to “game of two halves” is “reversion to mean”. It’s what many of us say to ourselves to excuse a bad investment we continue to hold. “Just wait! Mean reversion will see it bounce!”

This is rarely the case. The odds of a stock bouncing in the short term may be better than those for a football team that is losing at half time eventually winning the game — but probably not by much.

Momentum is a powerful force. When a company is on a roll it tends to do better and for longer than you expect — as does its share price. Troubled companies can take much longer to turn round than expected.

Does that mean these half-time leaders will still be there at year end? I don’t know. What I do know is that you have to understand what is driving performance — company results or currency movements? Don’t kid yourself that your laggards will become winners soon. Acknowledge the power of momentum. And never forget another famous Greavsie saying that applies equally to investing and football: “It’s a funny old game.” Always be prepared for surprises.

 

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