Stat o' the Day: Inside the Junk Rally

Last month I talked about the character of this market – the fact that lower quality, cyclical stocks seemed to be leading after underperforming in 2011.  USAToday Money puts some meat on those bones with this astounding factoid: Stocks that are losing money are outperforming profitable ones in the S&P year-to-date!

Over the past four quarters, 26 companies in the Standard & Poor’s 500 have posted net losses. Sears Holdings (SHLD) posted the biggest loss of all, to the tune of $3.1 billion.

How have the shares of these money-losing stocks performed so far this year? Sears Holdings is up a remarkable 139%, a strong showing for a company that’s losing money. Perhaps this is the stock that prompted you to ask the question. On average, shares of the 26 companies that lost money are up about 12.4% this year. That tops the 9.7% average gain by the remaining stocks in the S&P 500 of companies that made money.

But wait. Before you run out and buy shares of companies that are losing money, keep a few things in mind:

• The average gain by the money-losing companies is greatly distorted by the gain by Sears’ shares. If you take the median of the money-losing companies, the median gain is 7.7%. That falls short of the 8.8% median gain by the companies in the S&P 500 that made money last year.

Damned Sears is teaching investors all the wrong lessons!  Knock it off!


Money-losing companies seeing stock gains, but should I buy? (USAToday)

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