Shares of Cardinal Health shine in otherwise dismal stock market

In what was a brutal year for stocks, Cardinal Health was an exception to the rule.

Shares of the Dublin-based wholesale drug distribution and medical products company rose 49.3% last year to a multiyear high, defying stock markets that posted their worst year since 2008.

And while shares of most local public companies struggled last year, Cardinal did have company on the plus side: Shares of food company Lancaster Colony, for example, climbed 19.1% and shares of Greif, a Delaware-based manufacturer of industrial packaging and containers, went up 11.1%.

"The companies with more more stable, predictable earnings streams show less volatility and do better in a recessionary environment," said Nick Raich, CEO of The Earnings Scout, an advisory firm based in Cleveland.

On the flip side, shares of Upstart, which uses artificial intelligence and machine learning to automate the borrowing process, fell 91% in 2022, after soaring 271.3% in 2021, and Root, the young auto insurance company, had a second straight tough year with shares falling 92% after dropping 80% in 2021.

Local retailers had a tough year as well, led by Big Lots losing two-thirds of its value.

Rising interest rates, slowing economy hurt stock markets

A year ago, stock market indices were at or near all-time highs, coming off a third straight year of big gains driven by low interest rates, healthy consumer spending and falling unemployment rates.

But then inflation jumped to four-decade highs and the Federal Reserve responded with stiff increases in interest rates that are slowing the economy to the point where many forecasts are predicting a recession in 2023.

Stocks, as a result, were punished, especially high-flying tech stocks that have little or no earnings.

The Dow Jones industrial average, made up of 30 large companies, fell 8.8% in 2022, the Standard & Poor's index of the 500 biggest public companies dropped 19.4% and the tech-heavy NASDAQ tumbled 33.1%.

Cardinal Health shares

jump in '22; others sour

Before their big jump in '22, shares of Cardinal Health hadn't done much for several years.

The Dublin-based company along with the other big drug distribution companies faced thousands of lawsuits over the distribution of opioids that were settled as part of a $26 billion settlement in 2021. Then early on the pandemic, Cardinal was hit with elevated supply chain costs from importing medical supplies.

With that, sales and profit for its fiscal first quarter that it reported in November topped Wall Street estimates, helping drive shares higher.

"I recognize there is still a lot to accomplish, yet I remain excited about these opportunities to drive growth," Jason Hollar's, Cardinal's new CEO, told analysts on a conference call. "I believe that our resilient business models, robust operating cash flow generation, favorable capital structure and capital allocation flexibility differentiates us in this time of macroeconomic uncertainty, and I am confident in our future."

Cardinal is the kind of steady business that stood out in '22 compared with the rest of the market, said Greg McBride, Bankrate.com's chief financial analyst.

"Companies with consistent profits and attractive valuations weather this environment much better," he said.

Local retailers Big Lots (-67.4%), Designer Brands (-31.2%), Abercrombie & Fitch (-34.2%), Victoria's Secret (-35.6%) struggled last year after posting gains in '21 as did companies that had benefited from lower interest rates, such as home builder M/I Homes (-25.7%) and insulation company Installed Building Products (-38.7%).

Shares of Marysville-based Scotts Miracle-Gro, a big COVID-19 winner from homeowners stuck at home, also were punished last year, falling 69.8%.

But shares of Upstart, based on the West Coast, with its largest office and second headquarters in Columbus, have continued to be volatile.

Upstart, founded in 2012, uses artificial intelligence and machine learning to automate the borrowing process.

The company went public at the end of 2020 and its shares climbed for much of 2021, rising 271.3% for the year.

At one point, it became one of the region's most valuable companies, but its valuation has now dropped to just more than $1 billion.

"Stocks with extreme valuations headed into a recession are the first to be sold," Raich said.

What will happen in '23?

Stock valuations that were stretched in 2022 have become more reasonable, but Raich believes that with the potential recession coming stock prices may have further to fall in coming months.

"No company is immune to the recession," he said. "Some companies are hurt less in a recessionary environment."

McBride said it's difficult for investors to pick the bottom of a stock market and that's why they should be invested over time.

"This is the time to be buying," he said. "It may not reward investors overnight, but over time it will."

Columbus businesses'

2022 stock performance

Prices are as of the close on Dec. 31. Excludes dividends.

Abercrombie & Fitch -34.2%

Advance Drainage -39.8%

American Electric Power 6.7%

Bark -64.2%

Bath & Body Works -39.6%

Big Lots -67.4%

Bread Financial -43.4%

Cardinal Health 49.3%

Commercial Vehicle -15.5%

Core Molding 52.6%

Designer Brands -31.2%

Diamond Hill -4.7%

Express -66.9%

Greif 11.1%

Heartland BancCorp 3.1%

Huntington Bancshares -8.6%

Installed Building Products -38.7%

Lancaster Colony 19.1%

M/I Homes -25.7%

Park National 2.5%

Root -92%

Rocky Brands -40.7%

Scotts Miracle-Gro -69.8%

Upstart -91.3%

Victoria's Secret -35.6%

Wendy's -5.1%

Worthington Industries -9.1%

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