Should Investors Buy The Year's Worst-Performing Stocks

John Dorfman | December 24, 2018

Should Investors Buy The Year's Worst-Performing Stocks
How often does that happen in the stock market? According to a little study I performed, it happens about 44% of the time.I studied the five worst-performing stocks in the Standard & Poor’s 500 each year, based on price change alone, and measured the total return (including dividends) the following year. This mini-study covered the worst losers of 2013-2017, and tracked results in 2014-2018 (this year’s results are through December 21).Eleven of the 25 disgraced stocks in the study returned to grace in the following year, beating the market index. The average total return for the scarlet-letter stocks was 8.7%, versus 8.1% for the market as a whole. These results are close to a coin flip. So, is there any reason to focus on the year’s biggest losers? Yes, there is.The big losers are often extreme performers the next year, for better or worse. Perhaps you owned Vertex Pharmaceuticals (VRTX) in 2017, when it climbed 103%. Or maybe you were fortunate enough to enjoy a 95% gain in Freeport-McMoRan (FCX) in 2016. In 2014 you might have bagged a 94% gain in Edwards Lifesciences (EW). Each of those stocks was among the biggest losers the year before.You want to hear about the flip side? General Electric (GE) fell 45% in 2017 and is down another 58% this year. Under Armour (UA) dropped 39% in 2016 and 50% in 2017. Twitter Inc. had back-to-back losses of 44% and 35% in 2014 and 2015. What this adds up to is this: It pays to scrutinize the list of big losers, but it’s a high-risk endeavor. Let’s have a look at the five worst performers in 2018 as the year draws near a close.

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