Investor Relations in a Bear Market
Every great story deserves an engaged audience.
It’s a philosophy we deeply believe in at PondelWilkinson – So much so it’s splashed across our website banner and written on the back of our business cards.
And it rings true regardless of market conditions, even in bear markets, when the value of equities or other investments dip 20 percent or more from recent highs.
That happened around mid-June on the S&P 500, and while there’s little companies specifically can do to calm market forces, taking a proactive, non-promotional stance is the best course, according to PondelWilkinson CEO Roger Pondel.
“Retreating or staying purposely quiet is not a strategy that works,” he asserts. “Astute investors have their antennae up now, looking for good companies.”
In a bear market, investors go into safer stocks, explains PondelWilkinson Vice President Judy Lin Sfetcu, who adds some historical context to highlight her point.
During the dark months of the financial crisis of 2007 and 2008, when the S&P sank nearly 52%, investors flocked to companies with solid financials and established track records, abandoning companies teetering on insolvency.
“If a company has a good balance sheet, they should be messaging that to investors and Wall Street,” Sfetcu says.
Managing Director Laurie Berman views this bear market more as a reflection of investor sentiment, than company specifics, and a recent tally by FactSet provides some data points to back that up.
Through July 22, 2022, 68 percent of S&P companies in Q2 reported a positive EPS surprise, while 65 percent of S&P companies reported a positive revenue surprise.
Granted it was a small sample size (21 percent of total company results), but undoubtedly good quarterly metrics by several publicly traded companies.
Yet, as of press time, the S&P was down just over 13 percent for the year. The tech-heavy Nasdaq, down 21 percent this year, closed with the worst six month start on record, losing nearly 30 percent of its value through June, according to Yahoo Finance.
“If a company is being negatively impacted by macro issues, that company should be honest about what that means for its future, and importantly, what steps are being taken to try to insulate it, or use the macro issues to their advantage,” Berman suggests. “Highlighting certain areas that may give investors more confidence can be helpful.”
Analysts and other finance experts contend bear markets typically last between nine months and a year, so settle in for some continued volatility, especially as inflation, pandemic-led labor shortages, related supply chain constraints, and rising interest rates present ongoing challenges.
In the interim, here are a few more dos and don’ts to ponder:
- Think responsiveness and transparency.
- Message the company’s strengths: cash flow and balance sheet; client/customer relationships; resilience and history in prior down markets.
- Message if and how current economic conditions are creating change for the company, positive or negative, including decision-making.
- Be certain that investors hear regularly from c-suite executives, sometimes more than the CEO and CFO, on conference calls, non-deal roadshows (NDRs) and conference presentations.
- Court and know key investors and their concerns, not just about your company, but about their portfolios.
- Give investors reasons to hold your shares, or buy more.
- Don’t feel defensive about a falling stock price, particularly if the company is still performing well. Investors know the reason.
“Resist the temptation to over-promise about the future,” says Pondel. “Be proactive about reaching out to new investors and participating in NDRs and conferences. They are not a waste of time, even in a bear market.”
Consider this blog entry a primer to a larger discussion on investor sentiment, a key topic we’re aiming to further develop into a whitepaper this fall, with insightful take-aways to help public companies improve communication and messaging during volatile times.
Chris Casacchia, ccasacchia@pondel.com
