“In-favor stocks tend to fall out of favor, and vice versa.”
Stocks’ yearly performance rankings are a field day for contrarians: One year’s worst often are the subsequent year’s best, and vice versa. Consider Nvidia
NVDA,
+0.57%,
which is by far the best-performing stock this year among those in the S&P 500
SPX
— up 214.6% through Nov. 7, according to FactSet. Last year Nvidia was among the worst— down 50.3% and underperforming 475 of the other stocks in the S&P 500.
Stunning as this reversal is, it is not unique. Investors should take the contrarian lesson to heart and consider buying stocks at the bottom of the performance rankings. The chart below summarizes the reversals from 2022 to 2023. Last year’s worst 25 stocks in the S&P 500 have gained an average of 3 …
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