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Number Cruncher

How to win with a ‘loser’ portfolio Add to ...

What are we looking for?

In a nutshell, stocks that analysts hate.

Back in 2011, The Wall Street Journal looked at how a portfolio of analysts’ 10 most recommended stocks would have fared compared to a portfolio of their 10 least loved names.

The results were interesting, to say the least.

The 10 top-rated stocks provided a very respectable combined return of 24 per cent in 2010. But the stocks that nobody wanted would have done even better, returning 32 per cent.

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In 2009, the top-rated portfolio would have netted a 22-per-cent return, while the “loser” portfolio would have returned – get this – 70 per cent.

Granted, the sample size was small, but the takeaway is that unpopular stocks can have far more upside potential than high-fliers.

How we did it

We screened for Canadian stocks with more than five recommendations, at least three “sell” recommendations and a consensus rating among analysts tracked by Bloomberg of 3 or less, on a scale where 1 is equivalent to a strong sell recommendation and 5 means a strong buy.

What we found

Some of the names on this list come as no surprise. Research In Motion, for example, is a sad, familiar story. Despite the launch of BlackBerry 10, the Canadian tech stalwart still has a very steep hill to climb to win back the market’s favour.

Encana Corp. is a similar case. The company bet big on natural gas and sold off its crude producer Cenovus, only to see gas prices slump and crude prices rise.

What may surprise investors is the sight of two of the Big Six banks on this list. Both Bank of Montreal and National Bank were recently downgraded because of their exposure to over-leveraged consumers. BMO’s heavy reliance on the U.S. market is an additional mark against it, while National Bank’s 2012 return of 6.1 per cent came in last amongst its peers.

Given the low hopes that surround these stocks, they should have an easier time beating expectations than their widely touted brethren. And that may mean a bigger payday for those willing to take a chance on them.

As always, do you own research before investing in any of these stocks.

 

Where analysts fear to tread

Company Ticker Total Analyst Recommendations Consensus *
Research In Motion RIM-T 45 2.4
Encana Corp. ECA-T 25 2.9
Bank of Montreal BMO-T 22 3
Penn West Petroleum PWT-T 21 2.8
National Bank of Canada NA-T 18 2.8
Canadian Oil Sands COS-T 17 2.8
Nexen Inc. NXY-T 15 2.8
Northland Resources NAU-T 15 3
Bell Aliant Inc. BA-T 14 2.7
TransAlta Corp. TA-T 12 2.7

* 1 = strong sell, 5 = strong buy. Source Bloomberg

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