Investors that were saddled with the market's worst performers of 2017, including Under Armour and General Electric, may do well to remember as December draws to an end that lumps of coal sometimes turn into diamonds.
As investment advisors rebalance clients' portfolios in the final weeks of the year, the instinct to dump stocks that have been left behind in surging markets - or that fall out of favor with analysts - can be self-destructive.
With the S&P 500's rally pushing price/earnings multiples to highs not seen since 2002, laggards overlooked by a rush to own technology and other high-growth stocks may attract bargain-hunting investors heading into 2018.
"A contrarian strategy of buying beaten-up names might have a good year," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
Ghriskey in recent months bought shares of General Electric, which has slumped 45 percent this year as it struggles with a shift from coal and gas to renewable energy. He believes the 125-year-old conglomerate will claw its way back to growth, or might be split into multiple companies.
Some of the worst-performing stocks of 2016 roared back to life in 2017, including Vertex Pharmaceuticals and medical device maker Illumina. Those two companies this year have rebounded 69 percent or more.
As he rebalances clients' portfolios this month, Jake Dollarhide, head of Longbow Asset Management in Tulsa, Oklahoma, is investing more in Kroger Co and other supermarkets that took a beating after Amazon.com said in June it was buying US supermarket chain Whole Foods Market.
Kroger has lost 20 percent year-to-date and it recently traded at 14 times expected earnings, compared to its five-year average of 27.
