Like Meta: Buying long-term stock winners unfriended by the market

Investing when a high-quality growth company has lost friends in the market could be a wise investment strategy. Just look at Meta.

Meta shares bounced back from 2022’s sharp decline after chief executive Mark Zuckerberg turned around the tech giant’s fortunes. Picture: AFP

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At one point, back in 2022, the market cap of US tech giant Meta (formerly Facebook) dropped as low as $US230bn. The company and its investors had lost $US800bn in market capitalisation in just one year, and the shares were down 75 per cent from their previous all-time high.

While the detailed reasons for the company’s significant decline are debatable – the broader market and its peers also fell significantly – the official reasons seem to be that the company experienced slowing growth in its daily active users and rising

competition from TikTok. Importantly, its chief executive Mark Zuckerberg managed to turn it around through lay-offs, buybacks, and copying numerous features from TikTok. The company is now up 700 per cent from its 2022 lows. It’s worth about $US1.8 trillion ($2.7 trillion).

Clearly, investing when a high-quality growth company is on its knees – through either self-inflicted but temporary reasons, or because broader market sentiment hasturned negative (also temporary) – could be a very wise investment strategy.

To this point, I’d like to refer you to an obscure and unlikely-to-have-been-hitherto-reported Indian financial services firm, Motilal Oswal Financial Services.

In December last year the firm published a report entitled “Creating Wealth Through Bruised Blue Chips”.

It focused on large, established companies that faced setbacks but held potential for significant recovery, highlighting that India’s top 100 wealth-creating companies generated an unprecedented 138 trillion rupees ($2.45 trillion) in wealth over the five- year period to December 2024, with a robust 26 per cent compound annual growth rate.

Meta founder and chief executive Mark Zuckerberg. Picture: AFP

The study’s core theme emphasises the opportunity to invest in high-quality companies when their stock prices dip due to temporary challenges.

“Blue chips”, as we know, are defined as large, profitable firms with strong market leadership and long track records. In India, notable companies include Mahindra & Mahindra, a leader in automobiles and farm equipment; Bharti Airtel, a major telecoms provider; and Jindal Steel, a major steel and energy company.

These companies, like listed companies anywhere else, can become “bruised” due to external factors such as economic recessions, regulatory changes, or global events, as well as internal issues such as flawed strategies or high debt.

For instance, the report cites how Indian Hotels suffered during the Covid-19 pandemic, and oil marketing companies, such as IOC, faced profit squeezes due to government pricing policies. However, these setbacks often create opportunities for savvy investors to buy.

Encouragingly, the report, like many before it around the world, reveals that “bruised blue chips” recover through external tailwinds, such as favourable government policies or sector recoveries, and internal fixes, such as corporate restructuring or management changes. Case studies of companies such as Mahindra & Mahindra, which streamlined its portfolio, and CG Power, which overcame fraud-related losses, illustrate how strategic turnarounds can restore profitability and boost stock prices.

It therefore makes perfect sense for investors to create a watchlist of such companies and buy when valuations are attractive, typically at a low price-to-book or low price-to-earnings ratio by historical standards. Curiously, the report also suggests that basic technical analysis can help time purchases for maximum returns.

You may know my view on charting and technical analysis, having studied its assumptions and flaws professionally; at best, charts are a crude and clumsy way to define trends, which do exist for a multitude of reasons. At worst, it’s a lure, offered by the equally blind, that traps the unwary who part with all their money, hoping for an easy and quick way to riches.

The bottom line is that some of the biggest and most profitable companies in the world do experience drastic drawdowns for a host of reasons, including stockmarket crashes, legal challenges, economic recessions, changes to regulations and exogenous global events. Internal events are also responsible for temporary and large share prices collapses, including competitive threats, capital misallocation and poor or dishonest management.

For investors, the obscure study by Motilal Oswal emphasises the importance of patience and discipline, sensibly recommending a focus on fundamentally strong companies purchased at low market valuations to capitalise on their recovery and achieve substantial long-term gains.

According to the report, despite elevated market conditions, opportunities in “bruised blue chips” remain but are limited. That is true in India, but it is also true everywhere else.

An American study has, more recently, sought to replicate Motilal Oswal’s findings.

The 2025 Market Sentiment study on the S&P 500 defined blue chips as companies that were in the top 50 by market capitalisation. Each company tested had to be listed for at least a decade, and if they weren’t in the top 50 by market cap, they had to be in the top 250 and have produced an average return on equity over the last decade of at least 20 per cent.

Notwithstanding clear survivor bias in the study, the designers then awaited a 50 per cent decline in the share price before acquiring the shares.

Beginning in 2016, the average buy-and-hold return of the portfolio was 177 per cent, compared to 111 per cent for the S&P 500. Importantly, a buy-and-hold portfolio employing this strategy outperformed the market every year from 2016 to 2020.

Buying big cap winners when they temporarily fall on hard times could be a wise investment strategy. Picture: AFP

A more recent five-year track record produced 178 per cent overall return, versus 141 per cent for the S&P 500. And of the 24 companies in which funds were invested, only three have lost money to date, and none have gone bankrupt or been delisted.

More important than the hypothetical results are some of the study’s insights into the behaviour of companies that meet the criteria, individually and collectively. On average, 40 per cent of the top 50 companies in the S&P 500 will undergo a greater than 50 per cent drawdown over the next 10 years.

In other words, even if you own a top 50 public company in the US, there is almost a 50-50 chance its market capitalisation will drop by at least 50 per cent at some point in the next decade. That said, as a portfolio, the strategy offers some protection because of the 24 companies selected, only three have lost money to date and none have entered bankruptcy.

It seems wins beget wins. This low “death” rate is perhaps the most encouraging aspect of the investment strategy.

And why write about this now? Well, we appear to be on our way to threeconsecutive years of double-digit gains for the S&P 500. That has only happened once in the last 100 or so years. History suggests we’re due for a correction if not in

2025 then in 2026 or 2027. History also suggests that the biggest drawdowns occur when a Republican is helming the White House. With that in mind, being ready to implement a strategy of buying the big cap winners, when they fall on temporary hard times, is itself very timely advice.

Roger Montgomery is founder and CIO at Montgomery Investment Management.