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Don't Get Too Comfortable: the Dogs with Fleas are Running This Market

January 20, 2012 1:31 PM EST
There's a trend going on in the market this year that has some investors scratching their heads and still others licking their chops.

Many of 2011's worst-of-the-worst stocks are the absolute best performing stocks so far in 2012. This trend is not happening because these companies have reversed their fortunes and turned around their businesses. No, this is happening for purely technical reasons and short covering.

Take Netflix (Nasdaq: NFLX). Netflix was the third-worst performing S&P 500 stock in 2011, losing 60.6 percent of its value. So far this year the stock is up 45 percent. The streaming movie rental company won’t even make a profit this year.

Next look at Sears Holdings (Nasdaq: SHLD). 2011's eighth-worst performing stock, down 55 percent. The stock is up 54 percent so far this year. Sales are in the toilet and the company is closing stores hand-over-fist.

Then there's Bank of America (NYSE: BAC), a stock which lost 59 percent of its value in 2011 and was the fifth-worst performing stock in the S&P 500. Shares are up 25 percent so far this year. Legacy mortgage issues still plague the company and execs are selling off assets as fast as possible in an effort to bolster the balance sheet.

All these companies have major issues and have no characteristics of "growth" stocks.

Besides being among the worst performers in 2011, these stocks are also among the most hated and shorted stocks.

The year-to-date pops in these stocks has investors looking at other dogs of 2011 to see if they'll be next to run.

Here are 2011's other worst performing stocks and how they are performing so far this year.

  • Genworth Financial (NYSE: GNW): 2011's tenth worst at down 51 percent; up 23 percnet so far this year.

  • Computer Sciences (NYSE: CSC): 2011's ninth worst at down 53 percent; up 10 percent so far this year.

  • U.S. Steel (NYSE: X): 2011's seventh worst at down 56 percent; up 5 percent in 2012.

  • Cablevision Systems (NYSE: CVC): 2011's sixth worst at down 58 percent is up 3 percent so far this week.

  • AIG (NYSE: AIG): 2011's fourth worst, down 60 percent; up 10 percent so far this year.

  • Alpha Natural Resources (NYSE: ANR): 2011's second worst at down 67 percent is down another 4 percent in 2012.

  • First Solar (Nasdaq: FSLR): 2011's worst-performing stock at down 75 percent; up 15 percent so far this year.
While it is surely exciting to see stocks move 40 or 50 percent in a few weeks, it doesn't provide confidence in the quality of this year's rally so far. With major fundamental issues still looming, some of these stocks can go down just as fast as they rose and take the markets with them.


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