Remember all the beat-up stocks investors wrote off last year? In an interesting twist, last year's worst stocks are turning into the market's first. And speculators are making a quick buck.
The 10 worst S&P 500 stocks last year — including Generac Holdings, Match Group and Align Technology — are blowing away the S&P 500 this year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Additionally, this year they're trouncing the performance of the best stocks of 2022.
Talk about a role reversal. Seeing such a rally in beat-up stocks is yet another sign, along with surging meme stocks and a banner year for ARK Innovation, that speculation is back in the market.
"The market is hoping that all the bad news about (the fourth quarter) and forward earnings guidance is already baked into stock prices," said Nicholas Colas of DataTrek Research.
From Worst To First In The S&P 500
Data undeniably shows what's working in the S&P 500 this year is what fell apart in 2022.
All 10 of the worst stocks in the S&P 500 last year are up this year. All 10 are beating the S&P 500. And what's more, they're up an average of 13.0%. That not only tops the S&P 500's 3.5% gain this year, but it blows away the average 5.7% gain of last year's best 10 S&P 500 stocks.
Amazingly, it's the same story with the S&P 500 sectors. The worst four S&P 500 sectors last year — namely communication services, consumer discretionary, real estate and technology — are all topping the S&P 500 this year. The absolutely worst sector in 2022 — communication services, which dropped 38.2% — is this year's No. 1 sector, up 10.7%.
The same worst-to-first phenomenon is happening with smaller stocks, too. The 10 worst stocks in the S&P 1500 last year, which includes small companies, is up an average of 15.9% this year. Last year's top 10 S&P 1500 stocks, on the other hand, are only up 2.3%.
What are some of the beaten-down champions?
Generac Tries To Redeem Itself
Generator maker Generac pounded S&P 500 investors hard in 2022. The stock fell more than any other in the index — by more than 71%. But what a change a year makes.
Shares of Generac are now up 7.8% this year. That doesn't even begin to repair the drop in 2022. But it's a start, and it's a fast gain for speculators who jumped in this year.
Investors are betting business will hit rock bottom this year. Analysts think the company's profit will drop more than 13% in 2023. But then the lights come back on. Analysts are calling for 21% profit growth in 2024 and an additional jump of nearly 16% in 2025. But it's important to note that shares are still nearly 70% lower than they were in late 2021.
Tech Stocks Lead Market In 2023; 10 Big Earnings On Tap
Terrible S&P 500 Stocks Get Gussied Up
Match Group, an online dating app, is another example of how S&P 500 investors are scooping up damaged goods. Shares are up more than 21% this year, following a jaw-dropping 69% drop in 2022.
Again, this rally doesn't put Match back where it was in late 2021. Even following the run this year, Match stock is still down 62% from its 2021 level. But it's a story of looking beyond the negatives of the past. The company's adjusted earnings per share are expected to rise more than 58% in 2022, and keep moving higher in 2023, 2024 and 2025.
And with teeth-aligning company Align, investors are writing off a bad 2022. Profit is seen dropping by more than 36% in 2022. But growth is seen returning, with increases in adjusted earnings per share in 2023, 2024 and 2025. It's little wonder then that shares are up more than 12% this year, following their nearly 64% drubbing in 2022.
Caution Abounds With Bounces
Seeing last year's S&P 500 losers turn into winners this year is important to note. But caution is advisable, too.
Skilled growth investors know that most big runs happen with stocks showing strength. Additionally, investors trying to "buy the dip" got burned several times in 2022. All the attempted rallies of 2022 ultimately failed, leaving speculators with even larger losses.
But for now, the laggards of 2022 are making up some lost ground.
From Worst To First?
The 10 worst S&P 500 stocks of 2022 are outperforming the S&P 500
| Company | Ticker | 2022 change | Year-to-date change | Sector |
|---|---|---|---|---|
| Generac Holdings | -71.4% | 7.8% | Industrials | |
| Match Group | -68.6 | 21.5 | Communication Services | |
| Align Technology | -67.9 | 12.0 | Health Care | |
| SVB Financial Group | -66.1 | 26.6 | Financials | |
| Tesla | -65.0 | 8.3 | Consumer Discretionary | |
| Catalent | -64.8 | 9.8 | Health Care | |
| Signature Bank | -64.4 | 10.9 | Financials | |
| Meta Platforms | -64.2 | 15.8 | Communication Services | |
| V.F. | -62.3 | 6.3 | Consumer Discretionary | |
| PayPal Holdings | -62.2 | 11.1 | Information Technology |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
