A few days into the new year, the Vox column asked , “Can the dogs of 2012 become 2013’s stars?” It named the worst performers of the S&P 500 and the TSX Composite last year and noted the theory that many of them may soar in the first half of January.
Well, the first half of January is over, and the evidence suggests the theory worked this time.
The effect, highlighted by the U.S. investing newspaper Barron’s, could be due to the shares being oversold at the end of the prior year. Barron’s posits individual investors were harvesting losses for tax purposes, and institutional investors were dumping them to ensure they don’t appear on year-end lists of portfolio holdings.
First, the bottom 10 of the S&P 500, a list that included a broad cross-section of names, some well-known. When we first checked in after four days of trading, six of 10 had outperformed the S&P 500 as a whole, some substantially.
Through Wednesday, however, just four of the 10 outperformed the 3.3 per cent year-to-date return of the S&P 500. Those that did were up significantly, though: Hewlett-Packard Corp. and Best Buy Inc. have each returned more than 20 per cent, and Advanced Micro Devices Inc. and Pitney Bowes Inc. have double-digit gains. (I own 200 shares of Pitney Bowes.)
The winners’ gains were large enough to make the basket, on the whole, a winner: The 10 stocks’ average return was 5.1 per cent, nearly two whole percentage points better than the index. Not bad for a couple weeks of trading.
Vox also looked at seven stocks on the TSX Composite that declined 50 per cent or more in 2012. Through Jan. 7, six of the seven were outperforming the index, with three already in double digits.
A couple have since reversed course, meaning that just four of seven are still outperformers. But three of those four – Turquoise Hill Resources Inc., Kirkland Lake Gold Inc. and Gabriel Resources Ltd. – are up between 15 per cent and 20 per cent.
On average, the group of seven gained 4.6 per cent, versus 1.4 per cent for the index as a whole.
The numbers suggest, however, that Vox was tardy in writing about the idea: If you’d bought the U.S. stocks the morning the column was published, you would have a 1.1 per cent return, versus 0.7 per cent for the S&P 500. The Canadian stocks have, on average, slipped 0.4 per cent, versus the index’s gain of 0.9 per cent.
Vox promised to check back in at the end of 2013 to see if the loser squad can maintain the winning ways through the whole year. And, to be more helpful, it will also identify the 2013 losers in plenty of time to have a portfolio in place for the first trading session of 2014.