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Stock Strategist

Value Creators and Destroyers in 2008

We take a look at the best and worst performers of the first half of 2008.

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The first six months of 2008 have drawn to a close, and it's time to assess the damages and gains this new year has brought to the market. Who are the winners and losers of 2008 so far? As we've done in the past, we've examined the dollar changes in stock market values to derive our value creators and destroyers lists. To calculate the market capitalization for both Dec. 31, 2007, and June 20, 2008, we took year-end 2007 shares outstanding, adjusted for splits, and multiplied it by the share price at both dates.

There are always problems with these types of screens, and knowing the potential weaknesses is important in interpreting the results. Our method eliminates market capitalization gains solely from share issuance, including stock option exercises, acquisitions, and the capital infusions needed at so many banks. If an acquisition was dilutive to the existing shareholders, it is reflected in the numbers. However, there are drawbacks. Our methodology does not adjust for share repurchases, which means we might overstate the current market cap. Also, as a result of looking at total market capitalization, the results are biased toward large-cap stocks. However, even taking into account the limitations stated above, we believe this is the best method to demonstrate what would have happened to the investor who held on to these stocks for the past six months.

The Results

 Gains and Losses by Market Cap
 

Market Cap on
12-31-07
( $MM )

Market Cap on
6-20-08
( $MM )
Change
( $MM )
Change
( % ) 
Mega (>$100 billion) 10,292,138 8,937,618 -1,354,520 -13%
Large ($10-$100 billion) 13,213,876 12,107,556 -1,106,320 -8%
Mid ($1-$10 billion) 4,599,789 4,349,135 -250,655 -5%
Small ($100MM-$1B) 814,846 732,722 -82,124 -10%
Micro (<$100 million) 44,216 37,707 -6,509 -15%

No segment has been safe this year. Mid-cap stocks suffered the least damage, losing 5% so far. Micro-cap stocks performed the worst, losing 15% of their market capitalization year to date. As a whole, the 4,927 names we used in this model lost 9.4% so far this year.

Taking a closer look at the components, we see that investors were likely to lose the most value at either end of the size spectrum. A whopping 82% of mega-cap stocks--and 75% of micro-cap stocks--lost value in the first six months. On metrics of total change as well as percentage of stocks losing value, mid-cap stocks performed the best, losing just 5% of their value. However, only 35% of mid-cap stocks saw an uptick in their market caps in the first six months of 2008.

 Sectors by Market Cap
 

Market Cap on
12-31-07 ( $MM )

Market Cap on
6-20-08
( $MM )
Change
( $MM )
Change
( % )
Energy 4,384,159 4,487,304 103,145 2%
Industrial Materials 3,650,477 3,613,080 -37,397 -1%
Telecom 758,455 719,752 -38,702 -5%
Hardware 1,250,221 1,157,616 -92,605 -7%
Consumer Goods 954,373 859,703 -94,669 -10%
Business Services 1,447,148 1,332,633 -114,515 -8%
Utilities 954,716 837,458 -117,258 -12%
Health Care 2,081,171 1,881,971 -199,200 -10%
Software 2,710,671 2,395,248 -315,423 -12%
Media 2,672,471 2,335,550 -336,921 -13%
Consumer Services 2,519,703 2,024,830 -494,873 -20%
Financial Services 5,689,413 4,611,995 -1,077,417 -19%

Only one sector has managed to eke out a gain year to date. Helped by $130-a-barrel oil, the energy sector has squeezed out a small 2% gain. However, the dismal housing market and credit crunch have knocked off more than $1 trillion from the market capitalization of the financial services segment, and lowered expectations have made telecom the worst performing-sector on a percentage basis. Using the dates from our screen, the S&P 500 Index declined 10.2% so far this year, with the telecom and financial services sectors the major underperformers for the year, and the commodity-linked sectors of energy and materials the outperformers.

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Jaime Peters does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.