In the U.S. equity market, the worse a company’s finances, the better it’s doing.
Stocks with the weakest balance sheets have climbed more than 8 percent in 2014 and 94 percent since the end of 2011, generating almost twice the gain in the Standard & Poor’s 500 Index over that period, according to data compiled by Bloomberg and Goldman Sachs Group Inc. Shares in the category this year are beating those that most investors consider the bull market’s leaders, such as small caps and biotechnology, which tumbled in March.
“The more high-growth momentum names tend to be more expensive,” Joseph Tanious, a global market strategist at JPMorgan Asset Management, said in a May 21 phone interview. His firm oversees $1.6 trillion in client assets. “People are moving back into some of the more defensive names, and those stocks have performed well.”
Dallas-based Tenet Healthcare, a hospital operator rated B by S&P, has gained 14 percent this year. The company is getting a boost from Obamacare as fewer uninsured patients are visiting hospitals in states that have expanded Medicaid. Frontier Communications, based in Stamford, Connecticut, and rated BB-, has surged 25 percent this year, beating a group of phone companies that have increased 2.6 percent in 2014.