It’s been a rough ride these last few months by anyone’s estimation. However, some stocks have been better able to cope than others. As of Monday, June 22, a few big names are absent from the S&P/TSX Composite Index. Let’s skim through the list and see which names are out.
Even classically defensive names are unsafe
Ag Growth International has long had stronger analogues on the TSX, such as Nutrien. Nutrien is a nutrient input producer and retailer, however, while Ag Growth covers an array of industrial aspects such as farm machinery. It’s potash giant Nutrien that was the better play here, with its richer 5.2% dividend yield and strong, wide-moat standing. That said, investors eyeing the two stocks may just have had the decision made for them.
There was a time when practically any consumer staple stocks were a safe play. Not so during the lockdown. Restaurant name MTY Food Group has suffered from the kibosh on sit-down dining. Unlike Restaurant Brands, this name has struggled to perform even under the essential business banner.
Certain airline stocks looked like a contrarian dream come true until Bombardier finally got the thumbs down from the S&P/TSX Composite Index. Chorus Aviation joins Bombardier in being relegated, as airline stocks finally turn toxic.
Energy stocks have come in for a severe battering amid reduced usage and tumbling fuel and electricity prices. Oil and gas equipment and services have been especially hard hit. Names like Enerflex and Shawcor were removed from the S&P/TSX Composite Index this month. Oil and gas exploration and production is also getting walloped, with Baytex and Frontera joining the slush pile.
Other areas are also losing names. The materials, cannabis, and asset management industries also said goodbye to three previously indexed tickers this month. Chemtrade Logistics Income Fund, HEXO, and Alaris Royalty were all removed from the S&P/TSX Composite Index.
How to play the Index reshuffle
Investors will need to do their homework if they own shares in the companies that were removed from the S&P/TSX Composite Index. However, it’s not necessarily the end of the world for shareholders. Even actual delisting from the TSX itself would not necessarily mean that a stock cannot continue to be held in a TFSA, for instance.
As Jamie Golombek of CIBC Private Wealth Management wrote in the Financial Post: “Interestingly, there is a special rule that applies to Canadian public companies that have been delisted. Shares of Canadian listed companies that have been moved to over-the-counter status continue to be qualified investments for a TFSA and other registered plans.”
However, as always, investors will have to do their homework before making any long-term plans regarding embattled names. Additionally, Canadians should take the deletions as a sign that there are real-world consequences to a stock becoming too cheap for too long. The take-home: not every value opportunity is worth taking. The markets are full of falling knives, and the bottom is sometimes a dangerous place to be.
