It’s that time of the year, the one where investors buy the year’s losers–like International Business Machines (IBM), BHP Billiton (BHP) and Rio Tinto (RIO)–on the expectation that they will pop once the new year begins.
Eva-Lotta Jansson/Bloomberg/Getty Images While the strategy might work in January, don’t expect it to last, says Citigroup’s Robert Buckland and team in a report released last week. They write:
While simple contrarian strategies often perform very well at big macro turning points, they tend to underperform the rest of the time.
Contrarians were punished in 2013. An extension of a two-year 40% rally in global equities has made this one of the biggest momentum years since 1998.
But that won't stop the contrarians trying. Their big trade for 2014 will be to buy (again) the commodity-related stocks and Emerging Market countries…
While contrarian stock picking strategies are unsuccessful most years, they do tend to outperform in January.
How bad were contrarian picks in 2013? While Hewlett-Packard (HPQ) has gained 98% in 2013 after losing 45% in 2012, others caused heavy losses. Barrick Gold (ABX), for instance, has dropped another 51% this year after losing 25% in 2012, while Goldcorp (GG) has fallen 41% after dropping 19%. (Citigroup is picking the 10 worst performing stocks among the 250 largest companies in the MSCI All-Country World Index.)
Citigroup’s contrarian picks for 2014 include International Business Machines, which has dropped 4.4% this year, BHP Billiton, which has fallen 14%, and Rio Tinto, which is off 6% in 2013.
Shares of Hewlett-Packard have gained 0.4% to $28.28 today at 9:36 a.m., while Barrick Gold has risen 1.6% to $17.57, and Goldcorp has advanced 0.9% to $21.77. Shares of International Business Machines have gained 0.5% to $184.19, while BHP Billiton has fallen 0.3% to $66.88and Rio Tinto is little changed at $54.70.
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