Look back on the best-performing stocks in a given year and you’re likely to see a mixed bag: some mainstays, some breakouts and maybe even a meme stock or two.
Not so in 2022. Each of the 10 top-performing stocks in the S&P 500 index belonged to the same sector: energy.
In a year in which every other sector in the S&P 500 lost money, energy stocks delivered an average return of 59%, with top performer Occidental Petroleum returning 119%.
However, that doesn’t necessarily mean you should go out and add any of these stocks to your portfolio now, investing experts say.
Following an overall down year in the market, “don’t chase the few things that have performed well,” Christine Benz, director of personal finance and retirement planning at Morningstar, told CNBC Make It. “Doing a complete repositioning of your portfolio is a recipe for disaster.”
Here’s why investing experts say to tread carefully before adding last year’s winners to your portfolio.
You’re historically slightly better off buying losers
The market operates in cycles, and this has been a particularly good one for companies involved in the discovery, transportation and sale of oil and natural gas. Energy prices shot up early in 2022 after Russia invaded Ukraine and the U.S. and EU took steps to curtail Russian energy exports.
But a cyclical market means eventual reversion to the mean. Energy will come back to the pack, and laggards will catch up. There’s no telling when that will actually happen, but historically losers have outperformed winners following a down year.
“If it’s an up year, history says to let winners ride. However if the prior year was down, you’re better off rotating from ‘first’ sectors like energy to ‘worst’ sectors like technology and consumer discretionary,” said Sam Stovall, chief investment strategist at CFRA.
By Stovall’s calculations, a “first to worst” rotation has beaten the market 60% of the time since World War II.
That’s isn’t to suggest you shift your entire portfolio into tech, the worst performer in 2022. Rather, it illustrates that the factors that drive certain corners of the market to take off are unpredictable from year to year.
Choose stocks sparingly and carefully
If you’re a long-term investor, financial advisors generally recommend building a broadly diversified portfolio. By spreading your bets across a wide array of asset classes, you decrease the chances that a sharp drop in any one particular investment derails your portfolio’s performance.
For that reason, investors are typically told to steer clear of devoting too much space in their accounts to any one particular stock. Unlike the broad market, which has historically trended upward, any one stock has the potential to go to zero.
If you do want to invest in a few stocks as a complement to your core broad-based investing strategy, ignore which way the market is trending and examine each stock on its own merits, experts say.
“As long-term investors, we don’t try to chase momentum,” said Dave Sekera, chief U.S. market strategist at Morningstar. “We focus on opportunities where the market doesn’t understand the intrinsic value of a company.”
There are plenty of ways to determine a company’s value, and each investor has their favorites. You may want to focus on how a stock trades relative to the company’s earnings or cash flow, for instance.
No matter which measure you choose, the more a company’s stock price has run up, the more likely it is that it’s trading more expensively relative to peers, the broad market and its historical averages. And there tends to be some mean reversion there, too.
Headed into 2022, energy stocks were the most undervalued by Morningstar’s calculations. And after a 59% runup? “It’s the sector we now think is the most overvalued,” Sekera said.
Sign up now: Get smarter about your money and career with our weekly newsletter
Drive to provide shelter and home security
Drive to provide shelter and home security
WPBF West Palm Beach
Prince Harry’s New Book Alleges Prince William’s Physical Attack
Prince Harry’s New Book , Alleges Prince William’s , Physical Attack. Harry’s new book, ‘Spare,’ alleges that William once “knocked” the younger brother “to the floor” during an argument. According to the book, the argument concerned Harry’s marriage to Meghan Markle. I landed on the dog’s bowl, which cracked under my back, the pieces cutting into me. I lay there for a moment, dazed, Excerpt From ‘Spare,’ via NBC News. The book states that after being told to leave, William returned sometime later to apologize, asking that the incident remain private. According to reports of the contents of the book, Harry responded, “You mean that you attacked me?”. To which William allegedly responded, “I didn’t attack you, Harold.” . The debut of the book further puts into question whether Harry will be a part of his father, King Charles III’s, upcoming coronation. The ball is in their court. There’s a lot to be discussed and I really hope that they are willing to sit down and talk about it, Prince Harry, ’60 Minutes’ Interview, via NBC News. The coronation of King Charles III is scheduled for May 6. In an upcoming interview for ITV and ’60 Minutes,’ Harry responds to criticism that he has breached the privacy of the royal family. That would be the accusation from people who don’t understand or don’t want to believe that my family have been briefing the press, Prince Harry, ’60 Minutes’ Interview, via NBC News. Neither Kensington Palace nor Buckingham Palace has responded to the new accusations. Neither Kensington Palace nor Buckingham Palace has responded to the new accusations. The royal family initially responded to Harry and Meghan Markle’s accusations of racism as “concerning.” . While some recollections [of events] may vary, [the accusations] are taken very seriously and will be addressed by the family privately, Statement Released by Buckingham Palace Representatives, via NBC News
Money Talks News
Noah Schnapp Comes Out As Gay
Noah Schnapp , Comes Out As Gay. ‘TMZ’ reports that the 18-year-old ‘Stranger Things’ star made the announcement via TikTok on Jan. 5. When I finally told my friends and family I was gay after being scared in the closet for 18 years and all they said was ‘we know.’, Noah Schnapp, via TikTok. He was also lip-syncing this TikTok sound: “You know what it never was? That serious. It was never that serious. Quite frankly, it will never be that serious.”. Fans have speculated for years that Schnapp’s character, Will Byers, is gay because he’s enamored with Mike Wheeler. In the video’s caption, Schnapp said, “I guess I’m more similar to Will than I thought.”. He also spoke about his character’s sexuality in an interview with ‘Variety’ over the summer. Now that he’s gotten older, they made it a very real, obvious thing. Now it’s 100% clear that he is gay and he does love Mike. , Noah Schnapp, via ‘Variety’. But before, it was a slow arc. I think it is done so beautifully, because it’s so easy to make a character just like all of a sudden be gay, Noah Schnapp, via ‘Variety’
Money Talks News