The group of Facebook, Amazon, Netflix and Google have by themselves kept the S&P 500 in positive territory. The 4 companies are up 86% in 2015, but according to Fundstrat's Tom Lee that isn't going to continue next year.
"Since 2005, top 10 stocks underperformed the following year by an average of 290bp," he wrote in a note to clients. "In other words, what was the top performer in 2015 is unlikely to see follow through."
Lee said that the top 10 stocks from a given year underperform the broader market the following year 52% of the time. Additionally, Lee said that since the FANGs are growth stocks, that's good for value stocks next year.
Based on this idea, Lee assembled a list of value stocks that weighed heavily on the S&P this year, with the idea that this year's losers will next year become winners.
"Look at [the] worst stocks as possible FANGS for next year," he said.
Lee had four factors for inclusion:
- Stock is one of the bottom 25 contributors to S&P 500 point change YTD 2015
- Stock's dividend yield is greater than its bond yield
- Market cap is at least $10 billion
- Positive implied upside (based on the analyst price targets from 9 different firms)
We've compiled Lee's list below, along with each stocks contribution to the S&P 500 this year, the implied upside, and Lee's estimate for earnings growth over the next 3-5 years.
Check them out.