The old saying that every dog has its day is particularly applicable on Wall Street. In this case, the dogs are reliable companies that have underperformed over a one-year period that then outperform over the next year. In many instances, the opposite is also true; outperformers one year can be the next year’s underperforming dogs.
While there can be many causes for this type of pattern, the primary reason is the fact that stocks fall into and out of favor with investors. These ideas are rarely based in reality and more often merely reliant on the whims of the fickle herd of investors.
However, it may also be that an otherwise healthy company has simply had a difficult quarter or two and is then shunned by investors.
This market pattern can be very psychologically difficult for investors. Everyone is hard-wired to go with winners and ignore losers even if they intellectually knowing better.
The key to beating the market is to locate underperforming stocks that are lower for no real, long-term reason and have compelling bullish reasons to move higher.
I particularly like to purchase underperformers after periods of overall growth in the entire stock market.
With the major market indexes hitting all-time highs and bullish sentiment soaring, 2016 wrapped up to make 2017 an ideal proving ground for the “buy underperformers” investing maxim.
Here are three underperforming stocks poised for gains in 2017.