Five Year-End Bargains

The unfortunate turn of recent events in the stock market could be creating at least a modest flood of opportunity for contrarian investors.

This may be particularly true as we approach year-end, when artificial selling pressure, created by investors tossing their losers, offers some unusual short-term bargains. Once the selling pressure ends with the new year, many of the previous year’s worst performing stocks bounce upwards, sometimes sharply.

Nimble investors can capture some of the bounce before longer-term fundamentals and valuations take over after a month or so. Investors can also use the opportunity to start new positions in attractive longer-term investments.

Described below are six stocks that have some of the worst returns year-to-date. All are in the S&P 500, and represent a diverse roster of promising bounce candidates. 

Affiliated Managers Group (AMG)

Like many investment management firms, AMG has suffered from outflows as clients increasingly migrate toward index products. Also, many of its products invest outside of the U.S. where market returns have been weak.

The shares have lost close to half their value this year and now trade at the same price as they did in 2012. Yet, it has capable leadership that oversees a diversified and high-quality stable of top investment managers in public and private equities and alternative investments, including the innovative AQR Capital Management.

Its unique boutique model helps preserve its profits while keeping its managers motivated to produce strong returns. AMG’s balance sheet is sturdy, supported by strong free cash flows.

Applied Materials (AMAT)

This company is perhaps the premier producer of equipment that makes semiconductors. As chips become almost impossibly small and complex, Applied’s market position continues to strengthen.

Secular growth in chip demand is likely to remain robust, driven by the ever-increasing need for computing power. However, the industry is cyclical, with investors worrying about gluts in several types of chips.

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