History says these 30 controversial stocks are likely to outperform, according to UBS
James Faris
- Investors gravitate toward the same stocks to their detriment, a new report indicates.
- Companies that Wall Street analysts disagree about tend to outperform over time.
There's an old saying that remains relevant to investors: If we all think alike, no one is thinking.
Groupthink is prevalent everywhere, including on Wall Street. With the exception of a few outspoken contrarians, investors tend to ride the stock market's momentum instead of going against the grain since missing a massive rally can be costly — especially for fund managers.
However, picking the same stocks as everyone else can hinder outperformance.
Stocks that equity analysts agree either have a bright or dismal future have historically lagged behind those that the Street is split on, according to a mid-March report from UBS.
The firm found that companies with a higher so-called ratings dispersion from analysts have beaten those with low dispersions by 1.6% a year since the end of 2010. High-dispersion stocks have outperformed their low-dispersion peers 74% of the time in that span, UBS noted.
For reference, high-ratings-dispersion stocks' returns are better than high growth over low growth and high momentum over low momentum. Even still, this strategy is usually overlooked.
Within this high-dispersion strategy, companies tied to technology or adjacent sectors tend to perform best, according to UBS. Another reason to consider this method is that it has a low correlation to other stocks, which is a risk-management plus.
30 stocks that Wall Street is split onSince analyst alignment can be a bad omen for companies, it follows that investors should look for firms that can spark debates among those who follow them.
Below are 30 stocks with the highest dispersion in ratings from analysts, sorted alphabetically by sector and within their sector, if applicable. Along with each name is its ticker, market capitalization, and sector. Note that UBS doesn't necessarily recommend these companies.
3. Verizon Communications
4. Warner Bros. Discovery
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