- Investors have sometimes rewarded companies that are cutting jobs or spending recently.
- As the economy slows, they’ve been glad to see companies protecting their margins by spending less.
- Evercore says these 20 stocks have lagged, but should be able to turn their performance around.
Even as the US job market remains historically strong, some companies have started slashing positions — including major layoffs at Microsoft, Amazon, and Google.
In the past, companies that announced those job cuts have sometimes been rewarded. Investors expect an economic slowdown or a recession, and they’re nervous that a downturn could cut into company profit margins. Companies that announce job or spending cuts are getting ahead of that, which can be positive for their share prices.
Investors “were eager to reward companies early to address bottom line challenges in the context of a labor market historically tight in both supply and cost,” wrote Julian Emanuel of Evercore ISI in a recent note to clients.
The acclaim is far from universal, though. Some companies have been rewarded for trying to keep costs down, and others haven’t.
“Cost cutting will be a driver of alpha in the months ahead,” wrote Emanuel, who leads Evercore’s equity, derivatives and quantitative strategy team and its portfolio strategy team. “Share price performances of companies that have announced (and will announce) layoffs are likely to diverge.”
Emanuel said that companies that continue to post above-average earnings, sales, and profit margin growth have a good shot at outperforming. His team highlighted companies that have underperformed the S&P 500 since they announced job and cost cuts, but which are expected to log better-than-average growth in those vital metrics in 2023.
The following 20 companies have all announced job cuts since late September and have all underperformed the market since then. Emanuel says that in most cases, investors have also taken unusually large short positions against the stocks. That could contribute to upside for the stocks later: if the companies do beat expectations, investors who’ve shorted the stocks may have to buy them to cover their short positions.