Stocks like these 9 have historically outperformed in the new year, according to the firm.
As we head closer to the end of the year, for many investors it’s time to start thinking about what to add to their portfolios next year.
Goldman Sachs (NYSE: GS) is out with a strategy this week that it says has a good track record for beating the market: buying this year’s laggards.
According to Goldman, buying the prior-year’s bottom-third stocks has historically outperformed the S&P 500 in the first quarter of the next year 11 out of the past 17 years with an average 1.4% extra return on the benchmark index.
In 2019, this battered stocks trade has outperformed the S&P 500 by 3.7 percentage points, the firm said.
Heading into 2020, Goldman recommends buying those laggards that its analysts have out-of-consensus buy ratings on and above-consensus price targets.
Included on the “buy-rated laggards” list are Cree (NASDAQ: CREE), Etsy (NASDAQ: ETSY), GoDaddy (NYSE: GDDY), L Brands (NYSE: LB), Terex (NYSE: TEX), Twilio (NYSE: TWLO), Under Armour (NYSE: UAA), Westlake Chemical (NYSE: WLK), and Yelp (NYSE: YELP). These stocks have returned 2.05%, -13.66%, 3.09%, -29.61%, 2.54%, 9.23%, 6.28%, 2.18%, and -4.49%, respectively, so far in 2019.
Even the best performers in the group, Twilio and Under Armour, have delivered gains far below the S&P 500’s 24% year-to-date return.
Of these, Goldman analysts have buy ratings on Cree, L Brands, Terex, Under Armour, Westlake, and Yelp where other analysts have neutral or sell ratings, and the firm has price targets 5% higher than the Street’s consensus on Etsy, GoDaddy, Twilio, Under Armour, and Westlake.
However, while this “buy-rated laggards” strategy has historically performed well, Goldman cautions against investors just blindly buying the group.
“2019 has seen the strongest YTD absolute performance for laggards in over 5 years,” said Goldman analyst Alex Meintel in a note to clients. “It underscores the importance of a selective approach to playing this year’s group of laggards.”
“While the relative performance of laggards is in line with history, absolute performance is actually positive so far this year (+1% and +6% average and median, respectively), something that has happened just two other times since 2002,” Meintel added.