This morning we were beaten to it by The Age newspaper. Damn the ruthless efficiency and timeliness of the printed press.
“$2 company has new meaning” reads the front page story. It tells us that 48 of the S&P/ASX200 companies are trading for less than $2. We did a similar check on the S&P/ASX100 index yesterday. Fifty-three of those companies are trading for less than $5.
Of course the actual dollar value of the share price is not always significant. The market capitalisation of the company is more relevant. But it’s certainly a far cry from the euphoria of last year. Remember when pundits were jumping up and down with excitement trying to pick which Australian share would be the first to break through the $100 barrier?
Leading the charge was Macquarie Group, CSL, Rio Tinto and Perpetual. Where are they now?
The chart below tells us the story.
From December 2006 all four of them led a charge towards the $100 level. Then October 2007 came along and spoilt the party. Since then, as you’re no doubt aware, the share prices have plummeted.
As of yesterday Rio Tinto was $75.20, Macquarie was $26.95, CSL was $36.95 and Perpetual was $35.26.
Templeton’s $1 Stocks MkII
But back to our original premise.
Company share prices are getting smaller and smaller by the day. Market caps are falling. In fact, some of the companies that used to be blue chip are now targets for inclusion in our Australian Small Cap Investigator report. More on that later.
You may have heard this story. In 1939 US investor John Templeton bought $100 worth of stock in every New York Stock Exchange listed share that was trading for less than $1. So the story goes, there were 104 companies that he invested in with 37 of them in bankruptcy.
Three years later he was in profit on 100 out of 104.
Unfortunately we don’t have the time or space to do the analysis on every share currently listed on the NYSE. So here’s what we have come up with. After taking into account inflation, 1939’s $1 is now the equivalent of $14.78.
The NYSE now has 3,619 US companies listed, which is double the amount listed on the Australian Stock Exchange (ASX). But it doesn’t include listings of overseas companies - or the thousands more that are traded on the NASDAQ.
So, how many companies are trading on the NYSE for less than USD$14.78? It would be a lot, so we won’t bother counting. But if we look at a narrower range of stocks, say the S&P500 it tells us the following story.
Of the 499 companies in the S&P500, a total of 142 are trading at the inflation adjusted equivalent of less than a Templeton dollar. And they aren’t all Mickey Mouse companies either. There are some big names in the mix: Western Union, Sara Lee, New York Times, Morgan Stanley, Motorola, Mattel and Intel.
To make the equivalent investment to Templeton, an investor today would need to stump up around USD$210,000.
As for the Australian market. We’ll be writing about that in the next Australian Small Cap Investigator which is due to be released next week.
Cheers.
Kris.
