Revisting The Most-Hated Stocks In America

Revisiting The Most-Hated Stocks In America

Wednesday, September 3, 2008

A month ago, we took a look at the most-hated and most-loved stocks in America, according to a screen that looked at several objective sentiment-based measures.

If the stocks performed according to contrary theory, then the "hated" stocks should out-perform the "loved" stocks over time. It's only been a month - it should take several months at least to see tangible results - but we've received quite a few requests to update the screens and check back on the stocks from last month.

First, let's check on the stocks from last time to see how they did. The most-hated stocks are shown below:

We got kind of a mix there, some up and some down, but overall they showed an average return of +2.1%, slightly ahead of the S&P 500's +1.2% gain for the month. Four of them did better than the S&P.

Let's check the other group, the most-loved:

Again we see a mix of up and down stocks, but a couple of very large losers that dragged the overall average down to -4.1%. Only three of them did better than the S&P.

We need more time to see how these play out, but so far on average we've seen the most-hated stocks out-perform both the market in general and the other group, and the most-loved stocks have suffered more than the market.

Now let's look at the latest crop of stocks. To re-iterate, these are the criteria we used to define "hated":

1. A Short Interest Ratio that is in the top 10% of all stocks (showing a huge amount of bets the stock will fall relative to its average trading volume).

2. A consensus analyst rating that is in the lowest 10% of all stocks (showing that Wall Street has given up on the stock). At least three analysts have to cover the stock in order for us to consider it. The ratings go from 1 (strong sell) to 5 (strong buy).

3. Has put option open interest relative to call option open interest that is in the top half of all stocks (showing that traders are heavily invested in put options - bets the stock will fall).

We then combine all three measures to come up with a "hate" score.

Any stock that did not show up in last month's screen is highlighted in yellow.

Most of the stocks are low-priced, at or near $10. That may be a general commentary on low-priced stocks, and if we continue to only dredge up these kinds of issues in the future, then we can stipulate that only those trading above $10 or a certain market cap be included. We also see that almost all of them are either Financials or Consumer Cyclicals.

Like last month, we can also do the opposite, and look for the most-loved stocks by reversing the criteria above. Here, we'll search for any stock that has a Short Interest Ratio in the bottom 10% of all stocks, has a consensus analyst rating in the top 10%, and has a put/call open interest ratio in the bottom half of all stocks.

There's a pretty rag-tag mix of sectors represented on the list this month, and a slug of new entrants. Three Industrials popped up that achieved a perfect "hate" score of 0.00, so we'll see if these stocks are able to live up to their seemingly lofty expectations.