One way to handle a bear market, at least for those that manage money using relative performance as a measure of success, is to hide in large capitalization stocks, under the theory that these names are safer than others due to their sheer size. The idea is that because of their size, these stocks have a wider and more diversified shareholder base, and this will somehow insulate them during a downturn. However, this idea backfired in February, as some large caps experienced severe declines in the month and belly-flopped hard.

IN PICTURES: 10 Biggest Losers In Finance

The five worst performing large cap stocks in the S&P 500 for February 2009 are diversified by sector, and contain some well-known clunkers and a few surprises. I used a market cap range of more than $10 billion as a filter. And you can thank Uncle Sam (the Federal Government) for the poor performance of two of these five.

Company January 30, 2009 February 27, 2009 %
Unitedhealth Group
(NYSE:UNH)
$28.33 $20.07 -29.2%
Citigroup
(NYSE:C)
$3.55 $1.41 -69.4%
General Electric
(NYSE:GE)
$11.78 $8.55 -27.4%
Devon Energy
(NYSE:DVN)
$61.60 $43.65 -29.1%
American Express
(NYSE:AXP)
$16.73 $12.40 -25.9%

Many pundits have been bearish on Citigroup for months, coining the term "zombie bank" to describe its true financial condition. On the last trading day of February, the government made it official when it forced the bank to allow the conversion of preferred stock to common. The effect of this would be to boost the government ownership of the bank to 36%. Existing common shareholders would see severe dilution, as other preferred shareholders would also have the same right of conversion.

Another stock on the list was Unitedhealth Group, the giant managed care company. Unitedhealth Group and all other managed care companies were hurt by a proposal from the Obama Administration that would have the effect of reducing government subsidies. Bulls on the stock maintain that the proposal may be modified during budget negotiations - so much for healthcare being a defensive sector.

One familiar name on the list was General Electric. The stock was under pressure all month as the financial sector fell as many investors considered General Electric to be a closet financial due to its GE Capital business. The company's industrial businesses are also under earnings pressure due to the recession. The final straw was the company cutting its dividend to $0.10 from $0.31 per quarter, an action the company has long resisted. (Explore arguments for and against company dividend policy, and learn how companies determine how much to pay out, see How and Why Do Companies Pay Dividends?.)

One surprising name on the list was Devon Energy, an independent oil-and-gas exploration company. There was no recent news on Devon to explain the drop in February. The company reported earnings at the beginning of the month, and took a large write down of assets due to the drop in oil-and-gas prices in 2008. The decline occurred mostly in the last two weeks of the month and was likely a result of the stock breaking through its support level in the $55 range.

The last name on this list is also a household icon: American Express. AXP is suffering from higher delinquencies in its credit card portfolios, leading to speculation that the company may have its ratings cut.

When to Drop a Bellyflop
Investors who thought that they could have hidden in the large cap sector to ride out the bear market, found out the hard way that there was no respite from the selling gripping the market so far in 2009. Serious diligence needs to be done to find out if selling your stock now will save you from future floundering, or if you can stomach the slaps as they come. (Find out what you can do to prepare and cope in tough economic times, read 7 Ways To Recession-Proof Your Life.)

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