5 Crisis Plays That Came Good

Published in Investing on 24 October 2012

These five blue-chips have suffered steep share price falls but came back strong.

Events can lead to a company's shares suffering badly. As the crisis of confidence reaches a crescendo, many investors will even suggest that the shares are not worth buying at any price.

Don't think that buying a large-cap company will prevent a crisis ever visiting your portfolio. Some of the companies below were previously considered the bluest of blue-chip shares.

Buying a share that is currently suffering a crisis can prove highly profitable. As can holding on for a recovery. Here are five companies whose shares made a strong recovery after being hit hard.

1) BP (LSE: BP)

The Gulf of Mexico disaster was a real crisis for BP: billions of dollars of costs were incurred; the public and political criticism was scathing; BP was pushed to the brink; 11 men died.

Given the amount of suffering caused by the rig explosion, it seems callous to talk about the BP share price. Yet BP shareholders had no choice but to worry.

In April 2010, days before the explosion, BP shares traded around 650p -- their highest price since 2006. As the crisis unfolded, the shares fell further. By the end of June, shares in BP traded around 300p.

BP cancelled three dividend payments in 2010. Yet by the beginning of 2011, BP shares were back up to 500p.

The payout has since recovered significantly but is still below the level that shareholders enjoyed before the disaster.

2) Barclays (LSE: BARC)

Barclays' role in conspiring to fix the LIBOR interest rate pushed the company into crisis.

Before the scandal broke, Barclays shares traded around 200p. As investors panicked over possible recriminations and ramifications (large fines, reputational damage), the shares fell as low as 150p.

Barclays' chief executive and chairman were forced to resign. Before the scandal broke, such upheaval would have been considered a crisis in itself. However, when a company's reputation is being battered, some high-profile blood-letting is often good for the share price.

Withing two months of hitting 150p, Barclays' shares were back at around 200p. The shares were helped further by positive news from the eurozone. In the last month, Barclays has traded close to 250p.

Like BP, investors would have done very well if they had bought when the company's chief executive was summoned before a panel of politicians.

3) Morrisons (LSE: MRW)

From its origins as a market stall in the late nineteenth century, Morrisons has grown to be the fourth largest food retailer in the UK today.

One key development in the company's history was the £3bn takeover of Safeway in 2004. This transformed Morrisons into a top-tier retailer with nationwide reach. However, the deal encountered significant integration difficulties.

This resulted in profit warnings and significant investor disquiet. There were even calls for its septuagenarian founder Sir Ken Morrison to leave the board -- mostly from people with zero experience of retail.

Again, there was an important sign in the company's dividend. Despite the criticism, Morrisons increased its dividend almost 14% with the 2005 finals.

This did not stop the shares falling as low as 165p. Yet within 18 months, the shares were back above 300p.

Morrison's dividend is expected to hit 11.8p for 2013, more than three times the 2005 payout. The Safeway acquisition was a company-maker.

4) Standard Chartered (LSE: STAN)

In August, Standard Chartered was accused by US authorities of channelling monies through a New York office to Iranian financial institutions. You are not supposed to do this when it breaks US economic sanctions.

This news came almost immediately after the LIBOR scandal reached its peak. Shares in Standard Chartered slumped as investors began speculating on just how much this would cost the company. Some were even speculating that Standard Chartered could be kicked out of the US entirely.

At its worst, shares in the bank fell to 1,228p. Before the crisis broke, they traded at over 1,500p.

Six weeks later, Standard Chartered announced a $340m settlement with US regulators. The effect of this announcement was to draw a line under the issue for investors. On the day that the settlement was announced, the shares were back at 1487p.

5) Shell (LSE: RDSB)

Shell is one of the most remarkable companies in the FTSE 100 (UKX) -- it is a true global titan. Shell has not cut its dividend since the end of the World War II. For the last two years, Shell's total dividend distributions have been higher than any other UK-listed company.

However, even giants can stumble.

In January 2004, the news broke that Shell had been overstating its reserves. In the month that followed, the shares fell from 1,450p to 1,215p. Confidence was hit hard and senior executives departed. A BBC report at the time described the company as "looking distinctly third rate" in comparison with the other majors.

Examining the contemporary reports demonstrates just how investors and the media can be driven into a state of terminal speculation by something that is almost forgotten within a year or two.

The clue to investors was in the dividend. Shell's dividend was still increased following the crisis.

There are clearly big gains to be made if you can call these crisis plays correctly. If you want to learn more about the investment strategies that can make big returns, then check out the Motley Fool report "10 Steps To Making A Million In The Market". This is a free report you could be reading in minutes.

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> David does not own shares in any of the above companies. The Motley Fool owns shares in Standard Chartered.

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Comments

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QuantumDealer 24 Oct 2012 , 6:16pm

I don't agree that this is correct: "At its worst, shares in the bank fell to 1,228p. Before the crisis broke, they traded at over 1,500p."

...reason being, I managed to buy stock on 'the day' at 1103p.

CodeGimp 25 Oct 2012 , 1:32pm

...and today BP are back down to ~433p on a forecast yield of 4.4%.Well played, sir.

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