Here's the Secret to Making Money in Stocks This Year
CNBC.com Senior Writer
Forget all those squiggly up-and-down lines on the charts, because stock market investing has been easy in 2012: Just look for all the companies that did poorly last year and watch them grow.
In fact, the rise of 2011 losers has been one of the few clear patterns in stock picking this year.
Though dividends and domestic stocks have gotten a lot of chatter, the truth is that the theme has been a very simple form of rotation, with the top 10 performers on the Standard & Poor's 500 this year averaging a 2011 loss of 15 percent.
"The recipe for real outperformance thus far in 2012 seems to have very few ingredients," Nicholas Colas, chief market strategist at ConvergEx in New York, found in a trend analysis. "Look for beaten-up stocks with (more than $10 billion) market caps. Don't worry about valuation or dividends too much. Cyclical exposure — ideally U.S. centric — is preferable."
His look into this year's pattern, though, did turn up some intriguing results:
- In the S&P 500's top 25, the average winner is up 61 percent, the average loser down 32.5 percent.
- Ownership by exchange-traded fundshas played little role, with winners owned only slightly more often than losers.
- Dividends also haven't been much of a factor, with the average yield among the top 25 just 0.99 percent, compared to the 1.9 percent average for the 500.
- Mega-caps rule, with the average market capitalization rate, excluding Apple , at $18.4 billion "with plenty of +50 billion capitalization names in the mix." Smaller-caps dominate the bottom of the list.
- Sectors mean little either. "There are retailers at the top of the heap, and others at the bottom. Ditto for food companies, energy stocks, and household names in technology."
That leaves an interesting quandary for investors, who have tough choices in a stock marketwhere correlation, or the tendency of everything to move in the same direction, remains high.
"Of course, the more interesting question is whether or not these stocks can provide leadership for the rest of the market," Colas said. "The answer will come down to the state of the U.S. economy, given the economically sensitive nature of these names."
The top 10 in the S&P 500, followed by the bottom 10: