Weaker Stocks Will Get Weaker

Bad Stock

This week, Apple (NASDAQ:AAPL) hit a $3 trillion market capitalization. I don’t know how to explain this valuation. After all, this is a larger market capitalization than the GDP of all but four nations. Are they going to invite CEO Tim Cook to the next G-7 meeting? This is a stock that sits in a staggering 312 exchange-traded funds (ETFs). But that’s not the most incredible statistic about a stock that already represents more than 6.2% of the S&P 500. 

Check this out. The top 10 stocks on the index have the same total market capitalization as the bottom 412 stocks in the index. This explains how the S&P 500 can continue to rise while the majority of stocks in the index fall. If Apple and Microsoft both rally, their gains can offset the losses of hundreds of stocks. 

Last year, two personal favorites Devon Energy (NYSE:DVN) and Marathon Oil (NYSE:MRO) were the top performing stocks on the index. They will continue to rise if oil prices continue to move higher. 

But at the bottom of the chain there sit a few other stocks. The bottom 10 stocks in the S&P 500 are generating a lot of buzz and interest. I think investors need to be cautious. Let’s dig a little under the hood.

I Agree With Whom?

Last week, Jim Cramer – a man who rarely says sell – took the time to look at the worst 10 performing stocks in the S&P 500. Cramer said that the worst performing 10 stocks on the index will likely continue to underperform. 

Mr. Cramer has – in so many words – made the case for momentum in the year ahead. As I’ve noted, strong stocks tend to see stronger prices. This is an anomaly that has drawn academic interest for decades. Momentum as a strategy works. But on the other side, weaker stocks do get weaker. This is negative momentum. 

So, if we look across the index of stocks that have taken hits, we can see a combination of qualitative and quantitative factors that could lead underperforming stocks lower. 

Now – before we dive into these stocks, keep something in mind. These stocks will have occasional gains. Short squeezes will trigger. Short-term catalysts will ignite these stocks…

But be warned that many people who have lost money on these stocks – which have underperformed – may use any short-term pops to sell and recoup whatever gains possible. The rallies will likely be short lived. Let’s take a look. 

The Stock Don’t List

Penn National Gaming (NASDAQ:PENN) was the worst performer on the list, and the stock that I think will buck the trend. But it’s worth noting that headwinds exist in the gaming space. I like Penn, but would only focus on trading puts on the stock as a way to enter a longer-term position. 

In addition, I would avoid Las Vegas Sands (NYSE:LVS), which shed 37% last year. Wynn Resorts (NASDAQ:WYNN) is also an underperformer to avoid. I’m doing my best to focus on the REITs in the gaming space and less on the casinos. Las Vegas Sands and Wynn Resorts have too much exposure to China right now. 

Global Payments (NYSE:GPN) might bounce back a little thanks to the harvest selling. But the buy-now, pay-later model is saturated in a world awash with cash. Fintech right now is a mess, and there are plenty of community banks that are trading on the cheap. If the community bank is under a price to tangible book value of 1, it’s a good long-term buy.

Pfizer-spinoff drug play Viatris (NASDAQ:VTRS) is a dud. Pharmaceutical spinoffs that fall tend to fall lower. This looks like a value trap. Though it could be bought out, that’s too much speculation in a world that M&A is already going to be robust. 

Fidelity National is a fintech company that looks cheap and could experience a bit of a revival. But at the end of the day, I’d rather own insurance companies like CNA Financial (NYSE:CNA) instead. 

Citrix Systems (NASDAQ:CTXS) fell 27% last year, and might face activist pressure. But this is in a very crowded industry as well – “business collaboration software.” Last year was the year of Slack and Asana and every other software that I’ve grown to hate personally. I’m steering clear as well. 

Finally, Activision Blizzard (NASDAQ:ATVI) made billions on video games, but they’re laying off contractors. That’s a cause for concern in this crowded video game space. And MarketAxess (NASDAQ:MKTX) and IPG Photonics (NASDAQ:IPGP) operate outside my wheelhouse. 

I’m going to be looking to short some of these stocks – especially when momentum goes negative. In addition, I’m going to start shorting Twitter (NYSE:TWTR) as well… because it’s a garbage company on the brink of implosion. I’ll explain that more tomorrow. Let’s find some winners. I’ll be back with more market notes by noon Wednesday before the Federal Reserve releases minutes from its December meeting.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles