Daily Management Review

Bad Stocks This Year Could Turn Into Diamond Next Year


12/23/2017




Those stocks that have railed in 2017 as investors rushed to get hold of technology and other stocks that are believed to be high-growth ones, could be the ones that could attract bargain-hunting investors heading into 2018even as highest levels since 2002 were reached for price/earnings multiples by the S&P 500’s rally.
 
“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.
 
General Electric has seen a 45 percent fall in its prices this year due to its struggle to shift form coal to renewables and Ghriskey had bought shares of the company in recent months. He is of the opinion that either a split into multiple companies or a comeback by the 125-year-old conglomerate will be made in the ear future.
 
Stocks of medical device maker Illumina and Vertex Pharmaceuticals were among the stocks that did very well in 2017 after they performed dismally in 2016. There has been a rise of 69 percent in the stock value of both the companies.
 
After Amazon.com announced its acquisition of Whole Food Markets in June this year, retailer stocks like those of Kroger Co and other supermarkets were dragged down. But these are specifically the stocks that have been invested in by Jake Dollarhide, head of Longbow Asset Management in Tulsa, Oklahoma, as he attempts to rebalance clients’ portfolios.
 
Kroger had a five-year average of 27 time for its expected earnings, and it has traded recently at 14 times for that number and has fallen by 20 percent this year till date.
 
“Grocery is local; it’s not an internet play. And Kroger has the footprint to not even notice that Amazon is around,” Dollarhide said.
 
Components of the Dow Jones Industrial Average that have the highest dividend yield are bought every year by investors who appear to follow the Dogs of the Dow investment strategy as they bet that overselling of such stocks had occurred. Verizon Communications, International Business Machines and Exxon Mobil are included in that list and all have dividend yields of 3.7 percent or more.
 
At the beginning of current year, the same stocks were also identified as the Dogs of the Dow and throughout the year, they have not been able to perform according to their capacity. In the radar of other investors were the stocks of Cisco Systems, with a rise of 28 percent, Caterpillar, which has grown by 64 percent, and Boeing, that has witnessed a nearly double rise in 2017, which were bets for such investors following that strategy last December.
 
Nike was the worst-performing Dow component in 2016 and it had plunged by19-percent that year. there has however been a 25 percent rally in its stocks so far this year.
 
(Source:www.reuters.com)






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