Risk & Compliance

Investor Group Names 25 Underperformers

Companies on the ''focus list'' had total stock returns that lagged their broad market index and their Standard and Poor's industry group during th...
Stephen TaubOctober 12, 2004

The Council of Institutional Investors (CII), an organization of large public labor funds and corporate pension funds, released its 14th annual “focus list” of 25 underperforming companies.

According to the council, companies included on the list had total stock returns that lagged their broad market index and their Standard and Poor’s industry group over the one-year, three-year, and five-year periods ending June 30, 2004. Companies were ranked based on their “returns deficit” — the difference between the industry groups’ annualized five-year median return and the company’s annualized five-year return. The council then selected the 10 poorest performers from the S&P 500, 10 from the S&P MidCap 400, and five from the S&P SmallCap 600.

Eight companies of the 25 companies were on last year’s list: Interstate Bakeries, LSI Logic, Pinnacle Entertainment, Theragenics, United Rentals, UnumProvident, Valeant Pharmaceuticals (formerly ICN Pharmaceuticals), and Vertex Pharmaceuticals. Vertex, in fact, has now been on the list for three years running. Hercules and Qwest, which were included in 2002, avoided the list in 2003 but rejoined it this year.

In addition to Qwest, other listed companies that have been the subject of recent accounting scandals include Dynegy and El Paso.

The CII invited the chief executives of listed companies to provide up to four pages of comments; 15 of the 25 companies took up the offer. Tellabs attributed its stock’s collapse to the overall “bursting of the Internet bubble.” It added that the real benefits of its long-term strategic actions “will unfold over the next few years.” And Reader’s Digest wrote that “Our share price performance over the past five years, while disappointing, does not yet reflect the numerous actions taken or being taken to transform the company and significantly enhance its intrinsic value.”