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With the new year comes new trading opportunities. One method traders use to take advantage of the new year is to screen for companies that underperformed in the prior year. Buying these “dogs” tends to make for a market-beating year, on average.
That’s because stocks tend to revert to the mean—where underperformance leads to outperformance later, and vice versa.
One popular strategy is the Dogs of the Dow. Investors buy the 5 highest-yielding companies in the 30-company index. A few variations exist, however, like looking at the worst percentage performers instead of yield, looking at 10 companies instead of 5, and using a broader index.
But one other factor can come into play this time of year as well. It’s one that plays to the dogs theme, but tends to show more extreme value. It’s a theme based on a company dealing with a sizeable, but temporary problem.
Companies facing a crisis of bad news tend to get hit harder, and as the bad news wanes, it tends to lead to a market-beating performance in shares.
That’s why one of the top performing companies of 2020 could, surprisingly, be Boeing (BA).
The airline manufacturer faced a considerable crisis of confidence with its 737 Max planes, which were grounded last year after two crashes.
But with the company’s board of directors making a big change in the C-suite by kicking out the CEO, some perception management alone could lead to shares moving higher this year. Add in a resolution to the 737 Max problems and a return to flight, and the confluence of bad news that held shares back in 2019 could lead to big returns in 2020.
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