Why you shouldn't expect the A2 Milk (ASX:A2M) share price to bounce back in 2022

Is 2022 going to be another disappointing year for A2 Milk shares?

| More on:
A man holds his head in his hands after seeing bad news on his laptop screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At the start of each year, disciples of Michael O'Higgins' "Dogs of the Dow" strategy will buy many of the worst performing shares on a particular index.

The Dogs of the Dow strategy involves buying 10 of the worst-performing (dividend-paying) shares from the previous year from the Dow Jones Industrial Average at the start of the year. The dividend payment is seen as a sign that the company in question is still financially sound and not about to become insolvent. Some local investors also do the same on the local bourse with the ASX 100 index.

The team at Atlas Funds Management have been looking at the strategy and given their verdict on a few of Australia's "dogs".

Firstly, Chief Investment Officer, Hugh Dive, explained why the strategy can work for investors.

He said: "One of the reasons this strategy persists is that institutional fund managers often report their portfolios' contents to asset consultants as part of their annual reviews. This process incentivises fund managers to sell the "dogs" in their portfolio towards the end of the year as part of "window dressing" their portfolio before being evaluated."

"Here retail investors can have an advantage over institutional investors. Their lack of scrutiny from asset consultants allows them the flexibility to pick up companies whose share prices have been under pressure late in the year that could see a rebound when the selling pressure stops in January and February," Dive added.

Another year to forget for this dog?

One of the dogs of the ASX 100 last year was the A2 Milk Company Ltd (ASX: A2M) share price. It lost over half of its value during the 12 months. And while it doesn't actually pay a dividend, it appears to have been included due to its ability to pay a dividend if required. The infant formula company is sitting on a mountain of cash but chooses to reinvest it rather than pay a dividend.

Atlas Funds Management isn't keen on A2 Milk, though. This is because it believes "finding the fallen angel" is best when the "underperformance is due to stock-specific problems rather than macroeconomic issues beyond a company's control."

Whereas A2 Milk's underperformance has largely been driven by regulatory issues in China and falling ecommerce sales. This is not something which the company is able to control, as we have seen over the last 18 months.

All in all, although the A2 Milk share price has sunk lower over the last 12 months, this fund manager doesn't think investors should bet on it outperforming the market in 2022.

Should you invest $1,000 in Mandrake Resources Limited right now?

Before you buy Mandrake Resources Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Mandrake Resources Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

A shocked man holding some documents in the living room.
Broker Notes

Macquarie's take on Judo Capital shares after suddenly falling 19% yesterday?

Judo Bank was the ASX's top-performing banking stock in 2024.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Broker Notes

5 top ASX stocks to buy in May

These stocks could be quality picks for investors this month according to analysts.

Read more »

Person pressing the sell button on a smartphone.
Broker Notes

Sell alert! 3 ASX shares the brokers are calling time on

Brokers say it's time to hit the sell button on these ASX shares.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

What is next for ASX 200 shares after last month's upheaval?

Macquarie reveals its outlook for ASX 200 shares in May in a new research note published today.

Read more »

Happy young couple saving money in piggy bank.
Broker Notes

Invest $500 in these top ASX shares in May

Analysts think these shares could be in the buy zone for the month ahead.

Read more »

Person pointing finger on on an increasing graph which represents a rising share price.
Broker Notes

These ASX 200 shares could rise 30% to 40%

Let's see what analysts are saying about these buy-rated shares.

Read more »