The S&P/ASX 200 Index (INDEXASX: XJO) rose 21.8% in 2019. As Foolish investors, we aim to build a portfolio of stocks and ETFs that will beat the market over the long term. A long-term time horizon for investing means holding shares for multiple years in the future. Warren Buffett even believes in the idea of holding your stocks forever!
Costa Group Holdings Ltd (ASX: CGC) and Challenger Ltd (ASX: CGF) not only lost out to the market in 2019, but lost their investors' money outright. So, if you own either stock or are thinking of buying, it is important to remember that you need to look forward from today. Ask yourself, do I want to own this company in my stock portfolio for the next few years?
Costa Group
Down 64.3% (excluding dividends) in 2019, $1 billion market capitalisation
Costa describes itself as "Australia's leading grower, packer and marketer of premium quality fresh fruit and vegetables." The company sells mushrooms, berries, tomatoes, avocados, grapes, bananas and citrus fruit from its own farms, as well as a group of strategic alliance partners. These partners allow Costa to provide fresh produce in Australia, Asia, North America and Europe throughout the year.
The Costa share price has been under pressure for 18 months. The decline has mostly related to a series of earnings revisions, with the company missing guidance throughout that period. Most of the downgrades were from factors out of the company's control, however the $187 million capital raising in October 2019 at a discount of 36% also massively hurt the shares.
Most recently, Costa revised its calendar year 2019 adjusted net profit, taking it down from $57–66 million to approximately $28 million.
Costa also recently reported supply chain disruptions, as a result of the ongoing bushfires. Luckily the company has adopted the strategy of diversifying the business geographically, lessening the potential impact of this unforeseen event.
Going forward, there is no doubt people are being more health conscious, which is a positive trend for Costa in the long-term. Despite this, I'd want to see the company's earnings, guidance and share price stabilise before considering buying.
Challenger Ltd
Down 14.7% (excluding dividends) in 2019, $5.1 billion market capitalisation
Challenger is an investment management firm that can be split into 2 main businesses: Life and Funds Management. Challenger's Life division offers annuities that cater towards people in retirement. The company is Australia's leading provider of annuities, servicing more than 60,000 people who want/need reliable income streams.
The company's share price has been under pressure for 2 years now. Being in a low interest environment has been compounded by an industry shake up as a result of the royal commission. As a result, Challenger saw its interim profits collapse by 97%.
As the amount of money in superannuation swells to an astonishing $3 trillion, there should be increased demand for Challenger's annuity style products. It is projected that the population aged over 65 will rise by 40% over the next decade. These people will need some source of income on their large asset bases. With that amount of money involved, it is also worth considering that rules can and most likely will continue to change.
In my opinion, Challenger could be a good long-term dividend stock.
