December 22, 2017 / 12:00 PM / a year ago

RPT-Wall St Week Ahead-This year's lumps of coal could be 2018's diamonds

 (Repeats story with no changes)
    By Noel Randewich
    SAN FRANCISCO, Dec 22 (Reuters) - Investors saddled in 2017
with the market's worst performers, 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 2017.
    "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 said in June it
was buying Whole Food Markets. 
    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.  
    "Grocery is local; it's not an internet play. And Kroger has
the footprint to not even notice that Amazon is around,"
Dollarhide said.
    Investors following the Dogs of the Dow investment strategy
each year buy components of the Dow Jones Industrial Average
with the highest dividend yield, betting that those stocks have
been oversold. Currently, those companies include Verizon
Communications, International Business Machines
and Exxon Mobil, all with dividend yields of 3.7 percent
or more. 
    Those three stocks were also Dogs of the Dow at the start of
this year, and they have underperformed. But an investor
following that strategy last December also would have bought
Boeing, which has nearly doubled in 2017, Caterpillar
, which is up 64 percent, and Cisco Systems,
which has risen 28 percent.    
                        Dogs of the Dow
 Company Name                     YTD Total       Dividend
                                  Return          Yield
 Verizon Communications Inc              3.7 pct        4.5 pct
 IBM                                    -4.3 pct        3.9 pct
 Pfizer Inc                             16.7 pct        3.7 pct
 Exxon Mobil Corp                       -4.7 pct        3.7 pct
 Chevron Corp                            6.8 pct        3.6 pct
 Merck & Co Inc                         -1.8 pct        3.4 pct
 Coca-Cola Co                           14.9 pct        3.2 pct
 Procter & Gamble Co                    12.3 pct        3.0 pct
 Cisco Systems Inc                      32.8 pct        3.0 pct
 General Electric Co                   -43.3 pct        2.8 pct
 Source: Thomson Reuters data, Dec 20 closing prices, Total
 Return includes dividends
    Nike in 2016 suffered a 19-percent drop, making it
the worst-performing Dow component. In the past 12 months,
however, it has surged back with a 25 percent rally.     
    Due partly to increased competition from Nike, Under Armour
 has slumped 48 percent year to date, making it the S&P
500's third-worst-performing stock. Last January, most analysts
recommended buying Under Armour's shares and none recommended
selling. Now, most analysts are neutral on the yoga-pant
    Underscoring the fallibility of analysts, four of the 10 S&P
500 worst-rated stocks at the end of last year are on track to
finish 2017 with annual increases above the index's 20-perent
    Among them, domain name registration provider VeriSign
 has surged 53 percent, while Emerson Electric
has rallied 24 percent, with much of that gain in the past month
after the industrial-automation systems maker abandoned its bid
for Rockwell Automation Inc.

 (Reporting by Noel Randewich; Editing by James Dalgleish)
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