AMP Limited, Super Retail Group Ltd and Wesfarmers Ltd: Where to from here?

These 3 blue-chip stocks have underperformed the market in the past 12 months.

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It’s quite a demoralising number really, 6.62%, but at least it’s not -6.62% I guess! After a solid calendar year in 2013 in which the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) recorded an impressive 14.58% return, the current 12-month return from the index stands at just 6.62%.

Despite the mid-single digit market growth, some major blue-chip stocks have failed to even keep up with this low hurdle. Indeed the following three stocks are all showing losses over the past 52 weeks.

Of course, as Foolish investors know, sometimes it is the recent underperformers which will be the future outperformers thanks to a starting point of relatively depressed share prices. Here we take a look at the prospects and outlook for three such underperformers.


1)      AMP Limited (ASX: AMP) is down 4.1% over the past year. While its income protection business is causing some headaches for management, the long-term outlook for AMP which holds a commanding position in the financial planning and asset management space appears positive. Adding to the reasons to be positive on the stock is a long-term tailwind, leverage to improved insurance markets and growth in offshore earnings which could all help towards a re-rating of the stock in the future.


2)      Super Retail Group Ltd’s (ASX: SUL) share price has declined by nearly 5% in the last year after underwhelming investors with lower than expected earnings growth. While the company owns an impressive collection of niche retail businesses that offer stronger barriers to online competition that not many other retailers enjoy, the high multiple which the company trades on would appear to suggest there could be limited upside despite recent share price weakness.


3)      Wesfarmers Ltd’s (ASX: WES) conglomerate structure while offering a number of important benefits has also caused earnings to be hampered by the company’s exposure to coal mining and the wider resource sector downturn. The recent sale of gas and insurance assets has left Wesfarmers more and more dependent on its retailing assets and while there has been speculation that cash from these sales could be used for acquisitions, it would appear highly likely that much of these funds will be redeployed into boosting the Coles business further.


While investors need to be wary that the long-term returns being generated on newly invested capital are adequate, the near 9% share price underperformance against the index could be enough to appeal to some long-term investors.


Foolish takeaway

The stock market is far from perfectly efficient, however large blue-chip stocks are less likely to trade at significant discounts to their fair value due to the sheer number of investors and analysts following them. Despite this “efficiency”, from time-to-time opportunities do still present themselves for savvy investors to benefit.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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