Investing in Unloved Stocks Requires Vision, Patience

RELATED QUOTES

SymbolPriceChange
LSTR86.35+0.05

Hanging out with the wrong crowd can ruin your rep. Or sometimes it elevates your status.

The same can be said of certain stocks whose affiliation with a downtrodden sector might lead investors to snub a company that shows fundamental strength and long-term earnings potential. For some investors, stocks that are a little rough around the edges shout possibility. But those buyers must have the risk tolerance and the patience to wait out a turnaround.

[See top-rated ETFs by category ranked by U.S. News Best ETFs.]

Buying unloved stocks starts with three principles, says Preston Athey, manager of the T. Rowe Price Small-Cap Value Fund, in a research note. First, focus on a company's potential without being overly concerned with short-term issues. And, if you own a stock that isn't working in the short term but you can still see its long-term potential, you're less likely to sell at the bottom. Finally, if your thesis is working, there's a good chance it will work for a while. The biggest mistake a value investor can make is to sell winners too quickly.

Investors should view stock performance and company performance separately. After all, crowd mentality drives share prices. Even negative research can work to the advantage of brave value-seekers; a negative report might drive down the cost of bulking up on the shares you expect to do well over time.

"Take an industry like housing," says Robby Bryant, a financial planner with Magnolia Financial Planning Services in Seneca, S.C. "During the real estate slide, home-improvement retailer Lowe's saw its shares depressed in step with general bearishness. But we liked Lowe's as a company, so we used the share drop to buy more. We might not have been upbeat on the builders, but that doesn't mean we shunned every corner of housing."

[See Choosing Your Mutual Fund Lineup.]

T. Rowe's Athey offered oil-tanker stocks as an example. The sector's skid shows the importance of studying longer-term supply-and-demand conditions.

"The sector has been horrible and it's hard to say when it will turn around. We can't say with certainty when the demand and prices for their services will rise again. But we do know that there have been few new tanker orders for two years, so the supply of new tankers is likely to top out later this year," he said in the note. "Meanwhile, some ship owners are going bankrupt, tankers are being idled, and some are being scrapped, including even ones that aren't that old. No one is doing well. What I want to invest in are the oil tanker companies that we think will survive, the ones with little debt and enough cash on their balance sheets that can survive."

What's a value investor with a slightly pro-cyclical stock bias interested in now? Financials, for one. There's a category that takes some homework.

Athey's T. Rowe Price Small-Cap Value Fund included a nearly 23 percent weighting to financials, 22 percent weighting to industrials/business services, 12 percent weighting to consumer discretionary, and a 12 percent weighting to information technology, as of March 31, 2012. The rest of the fund's assets are spread across materials, energy, healthcare, utilities, consumer staples, and telecom. Top 10 holdings include: Landstar System (LSTR); ProAssurance (PRA); Raven Industries (RAVN); Aaron's (AAN); East West Bancorp (EWBC); Genesee & Wyoming (GNWR); 3-D Systems (DDD); Carpenter Technology (CRS); Kilroy Realty (KRC); Markel (MKL).

Russel Kinnel, Morningstar's director of mutual fund research, looks at mutual fund and ETF style rather than focusing on individual stocks to construct his "buy the unloved" strategy.

[See Why Are Younger Workers Attracted to Guaranteed Income?]

Kinnel crunches fund-flow data. The basic idea is that the categories with the greatest inflows in the prior year are overbought and those that had the most redemptions are oversold and thus, due for a rebound. For instance, the market-leading 2011 redemption levels in the "large growth" and "large blend" categories earned these two the top honors on Kinnel's early-2012 unloved (worthy of love) list.

Performance results validate the approach. Going back to the beginning of 1994 through the end of 2011, the unloved funds returned an annualized 8.98 percent, versus 7.42 percent for the S&P 500, Morningstar data shows.

Certainly, success with betting against the crowd is not new. Warren Buffett has famously said that a simple rule guides his stock buying: Be fearful when others are greedy, and be greedy when others are fearful.

Just be sure to jump in for a reason beyond the discount.



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • German air force inspecting 10 A400M engines on EASA orders - Die Welt Reuters - 1 hour 26 minutes ago

    BERLIN (Reuters) - The German air force is inspecting 10 engines from Airbus A400M military transport planes under orders from European safety officials after cracks were discovered in the combustion chamber ... … More »

  • J.C. Penney to close 13 to 14 percent of stores Associated Press - 1 hour 28 minutes ago

    J.C. Penney said Friday that it will be closing anywhere from 130 to 140 stores as well as two distribution centers over the next several months as it aims to improve profitability in the era of online ... … More »

  • PharMerica beats 4Q profit forecasts Associated Press - 1 hour 31 minutes ago

    The Louisville, Kentucky-based company said it had net income of 25 cents per share. Earnings, adjusted for one-time gains and costs, came to 58 cents per share. The results beat Wall Street expectations. ... … More »

  • BRIEF-Tdm says Jan fresh fruits bunches production 33,144.23 MT Reuters - 1 hour 33 minutes ago

    Feb 24 (Reuters) - Tdm Bhd * Jan fresh fruits bunches production 33,144.23 mt, crude palm oil production 5,849.54 mt, palm kernel production 1,597.45 mt Source ( http://bit.ly/2lzDSOU ) Further company ... … More »

  • Ellen, Wal-Mart give scholarships to school's senior class
    Ellen, Wal-Mart give scholarships to school's senior class Associated Press - 1 hour 36 minutes ago

    Ellen DeGeneres has handed out college scholarships to the entire senior class of a New York City charter school. DeGeneres surprised the 41 students from Brooklyn's Summit Academy this week at her California ... … More »

  • China, France overtake US as top German trade partners
    China, France overtake US as top German trade partners Associated Press - 1 hour 40 minutes ago

    New statistics show that China and France have overtaken the U.S. as Germany's largest trading partners. Germany's Federal Statistical Office reported Friday that trade between the country and China in ... … More »

  • Bitcoin is hovering near all-time highs
    Bitcoin is hovering near all-time highs Business Insider - 1 hour 44 minutes ago

    Reuters/Bobby Yip Bitcoin on Friday pulled back slightly … Continued The post Bitcoin is hovering near all-time highs appeared first on Business Insider. … More »

  • Gold hits 3-1/2-month high as 'Trumpflation trade' fades
    Gold hits 3-1/2-month high as 'Trumpflation trade' fades Reuters - 1 hour 45 minutes ago

    Gold hit its highest in about 3-1/2 months on Friday as the dollar headed for its first week of decline in three after the new U.S. finance chief poured cold water on the "Trumpflation trade" that had boosted the greenback this year. Treasury … More »

  • Telkom Said to Mull Purchase of Cell C Debt in Ownership Bid (1) Bloomberg - 1 hour 45 minutes ago

    Cell C creditors approached Telkom to help reorganize debt that includes 640 million euros ($677 million) of bonds maturing in July 2018, said the people, who asked not to be identified because discussions are private. Telkom, whose attempts to … More »

  • BASF's fourth-quarter operating profit boosted by higher petrochemical prices Reuters - 1 hour 47 minutes ago

    Germany's BASF (BASFn.DE), the world's largest chemicals group by sales, forecast a rebound in earnings this year after higher petrochemical prices boosted profits in the final three months of 2016. The company, whose products include catalytic … More »

  • Bundesbank official warns London banks against post-Brexit tricks
    Bundesbank official warns London banks against post-Brexit tricks Reuters - 1 hour 51 minutes ago

    UK-based banks that want to operate across the European Union after Brexit must set up genuine operations, not 'empty shells' in EU countries, a Bundesbank official said on Friday. Andreas Dombret, the Bundesbank board member responsible for … More »

  • J.C. Penney to Shut as Many as 140 Stores as Industry Slumps (1) Bloomberg - 1 hour 52 minutes ago

    The closings represent as much as 14 percent of the company’s store base and less than 5 percent of total sales, J.C. Penney said Friday. J.C. Penney’s plan echoes rival Macy’s Inc.’s announcement last year that it would shut about 100 of its … More »

  • Standard Chartered shares fall as it withholds dividend but lifts bonuses Reuters - 1 hour 53 minutes ago

    LONDON/HONG KONG (Reuters) - Standard Chartered (STAN.L) shares fell as much as 5 percent on Friday as the British bank said it would not pay a dividend for 2016 due to restructuring costs, but increased its staff bonus pool by 5 percent. The bonus … More »

  • BRIEF-Borneo Oil bhd updates on January production Reuters - 1 hour 57 minutes ago

    Feb 24 (Reuters) - Borneo Oil Bhd: * Jan ores mined 48,936.80 mt , Jan production of gold dore 72.54 oz Source text: Further company coverage: … More »

  • PSEG reports 4Q loss Associated Press - 1 hour 57 minutes ago

    On a per-share basis, the Newark, New Jersey-based company said it had a loss of 19 cents. Earnings, adjusted for non-recurring costs, came to 54 cents per share. The results surpassed Wall Street expectations. ... … More »

  • Harsco reports 4Q loss Associated Press - 2 hours 3 minutes ago

    On a per-share basis, the Camp Hill, Pennsylvania-based company said it had a loss of 19 cents. Earnings, adjusted for one-time gains and costs, came to 16 cents per share. The industrial services company ... … More »

  • E.W. Scripps beats Street 4Q forecasts Associated Press - 2 hours 3 minutes ago

    The Cincinnati-based company said it had profit of 46 cents per share. The results exceeded Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was for ... … More »

  • Exit by Polish Top Brass Guts Command on NATO Front Line (2) Bloomberg - 2 hours 4 minutes ago

    With the government moving to rid institutions of officials appointed by the former ruling Civic Platform party, which it defeated in 2015 elections, 90 percent of the General Staff leadership and more than 80 percent of the army’s top brass have … More »

  • Portugal could exit excessive deficit in spring - EU's Dombrovskis Reuters - 2 hours 9 minutes ago

    Portugal is set to exit the EU excessive deficit procedure if the European Commission confirms its latest forecasts for this year and next in a new assessment in the spring, a top EU official said on Friday. Lisbon says it cut the budget deficit … More »

  • EHealth reports 4Q loss Associated Press - 2 hours 14 minutes ago

    On a per-share basis, the Mountain View, California-based company said it had a loss of 91 cents. Losses, adjusted for stock option expense and amortization costs, came to 79 cents per share. The results ... … More »

  • China overtakes US as Germany's top trade partner AFP - 2 hours 15 minutes ago

    China overtook the United States last year to become Germany's biggest trading partner for the first time, official data showed, a shift likely to reassure Berlin as worries grow over US President Donald ... … More »

  • Calgon reports 4Q loss Associated Press - 2 hours 27 minutes ago

    On a per-share basis, the Moon Township, Pennsylvania-based company said it had a loss of 12 cents. Earnings, adjusted for non-recurring costs, were 5 cents per share. The results fell short of Wall Street ... … More »

  • Global stocks fall amid Trump trade policy concerns
    Global stocks fall amid Trump trade policy concerns Associated Press - 2 hours 28 minutes ago

    Global stocks fell Friday amid worries about the potential impact of U.S. trade policies and as investors became more cautious about the market's recent rally. KEEPING SCORE: France's CAC 40 slumped 1.4 ... … More »

  • Will the legend of Nokia 3310 see its comeback?
    Will the legend of Nokia 3310 see its comeback? International Business Times - 2 hours 29 minutes ago

    Nokia 3310 is truly a legendary phone that deserves a revival from HMD Global. … More »

  • IStar reports 4Q loss Associated Press - 2 hours 29 minutes ago

    On a per-share basis, the New York-based company said it had a loss of 27 cents. Earnings, adjusted for one-time gains and costs, were 4 cents per share. The commercial real estate finance company posted ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.225-0.045-16.67%
    N21.SI
    0.135+0.004+3.05%
    41F.SI
    0.191-0.007-3.54%
    40F.SI
    0.180.00-2.70%
    40E.SI
    0.1060.0000.00%
    5WA.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.60+0.28+87.50%
    AWC.SI
    0.48+0.17+54.84%
    BCD.SI
    0.35+0.08+29.63%
    BQO.SI
    0.515+0.065+14.44%
    T55.SI
    0.155+0.019+13.97%
    BKZ.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.225-0.045-16.67%
    N21.SI
    0.215-0.040-15.69%
    AWI.SI
    0.138-0.017-10.97%
    1C0.SI
    0.11-0.01-9.84%
    BRR.SI
    0.575-0.055-8.73%
    600.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.4050-0.0025-0.18%
    USDSGD=X
    1.4853-0.0036-0.24%
    EURSGD=X
    1.7577-0.0088-0.50%
    GBPSGD=X
    79.9660-0.096-0.12%
    SGDJPY=X
    5.5231+0.0123+0.22%
    SGDHKD=X
    3.1593-0.0033-0.10%
    SGDMYR=X
    9,486.1621-38.1729-0.40%
    SGDIDR=X
    4.8855+0.0077+0.16%
    SGDCNY=X
    1.0780-0.0075-0.69%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,253.80+2.40+0.19%
    GCJ17.CMX
    18.24+0.12+0.65%
    SIH17.CMX
    90.23+0.63+0.70%
    ^XAU
    2.67+0.01+0.26%
    HGK17.CMX
    54.02-0.43-0.79%
    CLJ17.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.83-0.05
    ^FVX
    2.35-0.04
    ^TNX
    2.99-0.04
    ^TYX