Here is a fun note on the lamest major stocks of the year from Nick Colas of DataTrek Research that you should check out. I guarantee that at least one of these names will end up on next year’s list of best performers. His report follows verbatim, states Jon Markman of Pivotal Point.

“Every year since before we even started DataTrek, in mid-December we’ve published an annual “worst stocks of the year” list. The idea here is that widely held losers tend to see tax loss selling in December. When that abates in January, these stocks can get a lift. Some readers will recognize this as a version of the “January effect” in small cap stocks. Because they are less liquid, small caps can often take it on the chin during year-end tax loss selling. But turn the calendar to January, and the marginal seller is gone.

With that preamble, here is a list of the 17 S&P 500 names that are down more than 40 percent this year, clustered in groups of to make it easier to read:

  • Carnival (CCL): -57 percent
  • Norwegian Cruise (NCLH): -56 pct.
  • TechnipFMC (FTI): -54 pct.
  • Occidental Petroleum (OXY): -53 pct.
  • HollyFrontier (HFC): -50 pct
  • Marathon Oil (MRO): -49 pct.
  • Diamondback Energy (FANG): -49 pct.
  • United Airlines (UAL): -48 pct
  • ONEOK (OKE): -46 pct.
  • Wells Fargo (WFC): -45 pct
  • Royal Caribbean (RCL): -45 pct.
  • National OilWell Varco (NOV): -44 pct.
  • Schlumberger (SLB): -43 pct.
  • Vornado Realty Trust (VNO): -43 pct.
  • American Airlines (AAL): -41 pct
  • Simon Property Group (SPG): -41 pct.
  • Phillips 66 (PSX): -40 pct.

Now, I’ve worked with hedge fund traders that have used this strategy over the years, so a few words of advice:

  • Don’t just buy the whole list. Some measure of due diligence is still necessary, and even then, not all these names will magically lift come the new year. There is a reason the worst stocks of the year have that title.
  • These are trades, not investments. Cut losses early, let winners run a little. But by the end of February this trade is over, so move along unless you’ve done the work to make these positions true “investments”.
  • Be ready for some volatility. Again, these are troubled companies.
  • If you like this idea but single stock risk isn’t your thing, look at perhaps trading the industry group represented by the names on the list. Energy is just over half the names this year, for example.
  • No coincidence, we suspect, that this group was the DataTrek community’s second most-favorite sector for 2021 in our survey last week.

Summing up with one broader observation: as much as US equity markets have weathered the storms of 2020 in reasonably decent shape, the list above is a good reminder that investors have very actively differentiated between winners and losers this year. When we scan the list above, we find ourselves thinking “yep… I get why XYZ Corp is down +40 percent on the year”. Yes, markets may often seem like the Fed’s liquidity tide is lifting all boats indiscriminately. But when you dig into the data you see a different and more rational picture, and that’s the way it should be.”

Learn more about Jon Markman at Pivotal Point.