Best and Worst Performing Stocks of 2017

Two of the best performing stocks year to date were among the poorest stocks of 2016; while 2017's worst performing stocks have been hit by scandal and political headwinds

Karen Kwok 6 June, 2017 | 11:11AM
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Best Performing Stocks Year to Date

ConvaTec Group (CTEC)

The best performing FTSE 100 stock of 2017 is ConvaTec Group, up 47.1%. The company is a medical products and technologies company. It is focused on therapies for the management of chronic conditions offering wound care, ostomy care, continence and critical care, and infusion devices. The company’s total revenue grew 1.8% to $403.1 million in the first quarter of 2016, the most recent trading statement read.

“We continue to expect revenue growth to be weighted towards the second half of the year and anticipate full year organic revenue growth greater than the FY2016 rate of 4% on a constant currency basis,” said Paul Moraviec, group chief executive with ConvaTec.

easyJet (EZJ)

Ranking as the second worst performing stock of last year, the low-cost airline EasyJet has reversed its fortunes; up 33.7% year to date.  The stock is not rated by Morningstar analysts.

Despite easyJet issuing profit warnings after the EU referendum last year, this year’s passenger statistics have shown a positive story. The company’s half year report revealed a record number of passengers for the first six months of the 2017 at 33.8 million, up 9% year-on-year, while total revenue was up 3.2% to £1.8 billion.

“Our bookings for the summer are ahead of last year showing that demand to fly remains strong and reflects growing evidence that consumers are prioritising expenditure on flights and holidays above other non-essential items. Looking ahead, we are seeing improving revenue per seat trend as well as the continued reduction of competitor capacity growth,” said Carolyn McCall, chief executive with easyJet.

International Consolidated Airlines Group (IAG)

International Consolidated Airlines was also one of the worst performing stocks in 2016, but it is up 34.3% to date. The company is in the operation of international and domestic scheduled air services for the carriage of passengers and cargo. It operates airlines including British Airways, Iberia and Vueling.

IAG’s shares fell 1% following the IT outage of British Airways on May 28 that grounded their aircraft at both London hubs and caused delays worldwide. Although BA blamed the problem on an electrical power supply surge, unions have claimed it could have been prevented had the airline not cut IT jobs in the UK and contracted the work to India last year. Further strike action by the airline crew will be taken next month, which might put pressure on the company’s share price.  

3 Worst Performing Stocks Year to Date

BT Group (BT.A)

BT Group is the worst performing stock of the year, down 17% year to date according to data from Morningstar Direct. This is largely due to the company’s announcement on 24 January that its investigation of improper accounting in its Italian unit will cost about £530 million. Shares in BT were down 20.8% on the day and have traded at similar levels since then. The stock is rated a four-star stock by Morningstar analysts, meaning analysts believe the stock is trading below its fair value estimate.

“BT's valuation is hurt by Italian accounting issues and weakness in the UK public sector. BT’s global services division and the U.K. public sector are struggling, negating growth in the retail division, but in the longer term, we expect the global services division to return to revenue growth,” said Allan Nichols, senior equity analyst with Morningstar.

BT’s large pension deficit is also an issue. Despite more than £4 billion in pension contribution since March 2012, the pension fund deficit remains at £9.5 billion after tax, said Nichols.

“With its new pension agreement, BT will pay £250 million in fiscal 2017, and payments will increase to close to £700 million annually for the next four years, with continued payments through 2030,” Nichols added.

However, aside from all these worries, the core business of BT seems to be functioning well and BT is one of the cheapest telecom stocks in Europe.

Tesco (TSCO)

Shares in Tesco fell 11.9% year to date, making the company the second worst performing stock in the FTSE 100. Tesco’s latest preliminary fiscal 2016-17 report were slightly disappointing, leading to a sell-off in April 12, but Morningstar analysts continue to see the stock trading above its fair value estimate. Therefore the stock is rated two-star by Morningstar analysts.

In recovery mode, Tesco’s margins will improve but it fails to attain past peaks, said Philip Gorham, senior equity analyst with Morningstar.

“Margins of the company have been falling because of high investments in the customer proposition, but it seems likely to recover sooner than we expected. However, we do not foresee a material recovery in margin levels, so we consider the stock overvalued at the current level. Usually in food retail it is a slower process to rebuild margins, which typically recover to a lower level than the previous peak, because cost savings generated will probably have to be reinvested in lower prices, leaving limited scope for higher margins,” said Gorham.

New management of Tesco has introduced more rigorous capital discipline, having suspended the dividend when earnings collapsed, said Gorham. However, he forecasts a reinstatement of the dividend for the trading year to February 2018.

Centrica (CNA)

“We believe Centrica the stock will remain dead money until more clarity is provided on the retail energy policy of the next UK government from the General Election, due to take place on June 8,” said Charles Fishman, equity analyst with Morningstar.

Thanks to the political headwind in the UK as the Tories have included an intervention in the UK energy supply market in their manifesto, for the General Election this week in June 8, utility stock Centrica dropped 15.9% year to date. The stock is rated as a four-star undervalued stock by Morningstar analysts. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk