Lessons from top market winners, losers of 2024

The PSEi index ended 2024 higher by only 1.2 percent year-on-year. However, if we look at the performance of individual index members, the market seemed to have performed much better as gainers outnumbered losers 17 to 13.

Moreover, 11 out of the 17 index gainers rallied by more than 15 percent, with the top gainer Converge rising by 95 percent.

Aside from Converge, other top index gainers include ICTSI (+62 percent), Metrobank (+52 percent), Century Pacific (+39 percent), Semirara (+39 percent) and Globe (+33 percent).

Outside of the PSEi index, there were also several notable nonindex gainers such as DigiPlus (+245 percent), Chinabank (+118 percent), and Manila Water (+53 percent).

Meanwhile, top index losers include Bloomberry (-53 percent), JG Summit (-45 percent), Nickel Asia (-34 percent), Universal Robina (-31 percent), Wilcon (-31 percent), Ayala Land (-23 percent), and SM Prime (-23 percent).

READ: PSEi ends 2024 lower, stays within 6,500

Here are some lessons we can learn from analyzing the performance of market winners and losers of 2024:

Earnings matter. Stocks that delivered stellar share price performance in 2024 registered strong earnings growth.

For example, Converge’s profits during the first nine months of the year jumped by 29 percent to P8.2 billion.

The company also saw the growth of its subscriber base reaccelerate, which helped boost investor confidence.

In contrast, stocks that fell sharply registered poor earnings performance.

For example, Bloomberry suffered from a net loss of P470 million in the third quarter of 2024 due to the overall weakness in the industry and higher costs related to its newly opened Solaire Resort North.

Although fund managers generally prefer buying stocks that belong to the PSEi index, nonindex names that delivered strong earnings growth also performed very well.

For example, DigiPlus rallied strongly as its profits during the first nine months of the year jumped 320 percent to P8.7 billion due to the popularity of e-bingo.

The caveat to this is that investors must go beyond the headline numbers in picking stocks to buy.

Despite posting healthy profits, some stocks were sold off due to concerns that their earnings performance would not be sustained.

For example, Ayala Land and SM Prime both fell by 23 percent. This was despite Ayala Land and SM Prime growing profits by 15 percent and 12 percent during the first nine months of the year respectively. Both stocks were sold down due to concerns that the prevailing oversupply of office and residential properties would negatively affect their future earnings as office rental revenues and residential sales could weaken.

Cheap valuations pave the way for substantial gains. One of the reasons why many stocks were able to make significant gains is because of their very attractive valuations.

For example, during the start of 2024, Converge’s share price almost doubled as it was trading at only 6.7X trailing P/E and almost 50 percent below its IPO price. Meanwhile, DigiPlus’ share price more than tripled as it was trading at only 7.7X trailing P/E.

When looking at valuations, it is important to remember what Warren Buffett once said, “The best chance to deploy capital is when things are going down.”

After all, once the profits of “cheap” companies turn around, their share prices have the potential to go up sharply because of their discounted prices.

Active investing can outperform passive investing. A passive investor who bought an index fund most likely made very little in 2024.

This as fund managers of index funds have no choice but to follow the stock allocation of the benchmark index regardless of fundamentals to reduce their tracking error.

However, an active investor who avoided just three of the worst performing index stocks (which they could have easily avoided because of their bad earnings performance) would have already outperformed the market.

Given the abundance of cheap stocks right now and the mixed earnings outlook of different sectors and companies for 2025, there seems to be a good chance that active investors will continue to outperform the market this year.