SAN FRANCISCO: Investors saddled in 2017 with the market's worst performers, including Under Armour and General Electric, may do well to remember as December draws to an end that lumps of coal sometimes turn into diamonds.
As investment advisors rebalance clients' portfolios in the final weeks of the year, the instinct to dump stocks that have been left behind in surging markets - or that fall out of favor with analysts - can be self-destructive.
With the S&P 500's rally pushing price/earnings multiples to highs not seen since 2002, laggards overlooked by a rush to own technology and other high-growth stocks may attract bargain-hunting investors heading into 2017.
"A contrarian strategy of buying beaten-up names might have a good year," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
Ghriskey in recent months bought shares of General Electric
Some of the worst-performing stocks of 2016 roared back to life in 2017, including Vertex Pharmaceuticals
As he rebalances clients' portfolios this month, Jake Dollarhide, head of Longbow Asset Management in Tulsa, Oklahoma, is investing more in Kroger Co
Kroger has lost 20 percent year to date and it recently traded at 14 times expected earnings, compared to its five-year average of 27.
"Grocery is local; it's not an internet play. And Kroger has the footprint to not even notice that Amazon is around," Dollarhide said.
Investors following the Dogs of the Dow investment strategy each year buy components of the Dow Jones Industrial Average with the highest dividend yield, betting that those stocks have been oversold. Currently, those companies include Verizon Communications
Those three stocks were also Dogs of the Dow at the start of this year, and they have underperformed. But an investor following that strategy last December also would have bought Boeing
Nike
Due partly to increased competition from Nike, Under Armour
Underscoring the fallibility of analysts, four of the 10 S&P 500 worst-rated stocks at the end of last year are on track to finish 2017 with annual increases above the index's 20-perent gain.
Among them, domain name registration provider VeriSign
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