By Ben Levisohn

The meek may inherit the earth, but in the stock market, winners usually keep on winning. Still, there's money to be made betting on some of 2024's biggest losers.

As much as we like to be contrarians, we know that markets are generally a momentum game. Look no further than the Invesco S&P 500 Momentum exchange-traded fund, which has gained 47.2% this year, compared with the S&P 500 index's 25.2% rise. The fund's biggest positions include Amazon.com, Nvidia, Broadcom, Meta Platforms, and Berkshire Hathaway. When markets are trending higher, buying stocks with strong momentum on the dips is generally the way to go.

But we are contrarians. We like thinking about what could go wrong for the stock market's biggest winners, and we really love figuring out what could go right for its biggest losers. Sometimes that leads us to make mistakes -- recommending Albemarle this year wasn't one of our finest moments -- but it can really pay off when we get it right. PayPal Holdings, for instance, has gained 41% since we recommended it in March.

And there look to be plenty of contrarian picks to make as the year comes to a close. About a third of the companies in the S&P 500 were in the red as of the close of Dec. 23, and just 142 had topped the index. Many of them underperformed for a reason -- Walgreens Boots Alliance, which is being taken private; potato product maker Lamb Weston, which recently ousted its CEO after reporting a surprise loss; and Paramount Global, which is merging with Skydance, among them -- but it still leaves plenty of stocks to sort through.

Where to begin? JC O'Hara, chief market technician at Roth MKM, recommends looking for stocks that are "massively oversold" and approaching levels that could serve as "zones of support" for a rebound. He found 28, including household names like Nike, Ulta Beauty, Merck, and Boeing. Others are less well known, but intriguing: payments company Global Payments, medical-device company Zimmer Biomet Holdings, and analog semiconductor manufacturer Skyworks Solutions.

Ulta looks particularly interesting. It started off the year with a bang, reaching $567.18 a share by the middle of March. From there, it was a long ride down, starting with a March earnings report that featured lackluster guidance. From March 13 through Aug. 12, the stock dropped 43%. Then a Berkshire Hathaway filing revealed that the company had bought shares, and the stock has bounced 36% since then.

Things do seem to be looking up. Placer.ai notes that it was among the big winners of Super Saturday, the last shopping day before Christmas, with traffic up 50% from 2019, while Deutsche Bank notes that the company's Dec. 6 earnings report revealed growth at stores open at least 13 months -- so-called same-store sales -- something that "refuted the bear case that it is a share donor in the beauty space."

Betting on a Boeing bounce sure feels contrarian. Yes, about 55% of analysts still rate the stock a Buy, but that's the fewest since June 2021. And the company has a new CEO in Kelly Ortberg, who will try to do what Dave Calhoun couldn't. Early results are looking good. The machinists strike ended, while the company resumed making the 737 Max earlier this month.

A lot still needs to go right from here: The company has to accelerate production; quality control needs to improve; and Boeing is still trying to acquire Spirit AeroSystems, which makes its fuselages. It's all very complicated and loaded with risk, but the upside potential if the company can avoid the potential pitfalls is undeniable.

Sure, none of these stocks look like slam dunks, and even O'Hara says some "are not 'quite there' yet" and could require patience. That's what makes being a contrarian fun. If it were easy, it would be called momentum investing.

Write to Ben Levisohn at ben.levisohn@barrons.com

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December 25, 2024 03:00 ET (08:00 GMT)

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