By Teresa Rivas

Investment losses are painful at any point, but losing stocks are even harder to stomach when the market is in the midst of a historic bull run.

Still, sometimes that's where there is money to be made.

To that end, co-founder Bespoke Investment Group Justin Walters compiled a list of S&P 500 stocks that have tumbled more than 30% in the past year -- a period when the benchmark index has surged roughly 20%. To translate: This cohort of 26 laggards has underperformed the market by more than 50 percentage points on a year-over-year basis. Ouch.

The list, of course, is the polar opposite of a momentum strategy, and strays far from the meteoric gains among tech stocks, especially artificial intelligence plays.

"In a market where most of the focus lately has been on huge gains across the AI [artificial intelligence] space, we think it's worthwhile to look at the areas that have been beaten down to try and find opportunities," Walters notes.

If the familiar is comforting, then investors might be heartened to hear that there are a number of surprisingly large companies on the list. Among them are Nike, Estee Lauder, Constellation Brands, Biogen, Merck, Walgreens, Dollar General, Adobe, Advanced Micro Devices, and Intel.

It's easier to make the case for some companies than others. Intel's struggles, for example, have been on full display since 2021. While momentum doesn't seem to be on its side, it does appear that 2024 was a trough year for profits, Walters notes. Wall Street estimates call for earnings per share to climb steadily through 2029. The same pattern holds true for AMD.

The biggest year-over-year decliners in each sector (that saw any stock with those drops) are Nike, Estee Lauder, Moderna, Huntington Ingalls, Celanese, Intel, and utility AES Corp.

"We're in no way suggesting that these names are set to outperform, but if you're a contrarian thinker that just can't stomach the momentum names or high-fliers after the runs they've had, these 'Diversified Dogs' may be a good starting point for further research," he writes.

Not surprisingly, analysts are mixed at best on many of these stocks; still fortune may favor the bold.

While only a quarter of analysts tracked by FactSet are bullish on Moderna, the average analyst price target of $59.95 implies the shares could nearly double from their current levels. Likewise, the average analyst price target suggests Merck and AMD are undervalued by nearly a third, and Biogen by more than half. AES would be up by nearly two thirds if it reached the average target on the Street.

Analysts are a notoriously optimistic bunch, so investors may be inclined to take their targets with a grain of salt. Nonetheless, it can be hard to ignore a bargain: Biogen, Merck, Celanese, AES are trading at less than 10 times forward earnings, with Huntington Ingalls just over that mark. By contrast, the S&P 500 changes hands for more than 22 times forward earnings, while the Magnificent Seven tech stocks trade around 30 times.

At a time when the market's highest performers have commanded nosebleed multiples, it may not be easy to be contrarian, but it can be cheap.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 11, 2025 16:28 ET (21:28 GMT)

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