This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ask TheStreet: Bad Sector, Good Stock

Editor's note: Ask TheStreet is designed to answer questions about the market, terms, strategies and investment methods. Please email us to ask a question, but keep in mind that we cannot offer specific investment- or stock-related advice.


I have been building a position in a stock which is in a sector that seems to be universally hated right now. I am starting to rethink this strategy. Thoughts?

-- Submitted via Stockpickr Answers

It sounds like you are acting like a good contrarian investor, which is a strategy used by many of the most successful investors in the world. Just think of Warren Buffett ( Stockpickr Portfolio) who tends to invest in "boring" and "old" (but financially strong) companies like Coca-Cola (KO - Get Report) and Wrigley (WWY).

At any given time, certain sectors will perform better than others. Investment managers use sector rotation strategies to capitalize on the current economic cycle.

If you are investing in a "hated" sector, that means you are buying a stock in a sector that is cheap, which is the best time to buy anything. Eventually, your sector will come back into vogue with the economy and investors.

Utilities, for example, were considered a boring sector during the Internet and technology bubble of the 1990s. The utility stocks were hated and went nowhere. But when the tech bubble popped, utility stocks like Allegheny Energy (AYE) and Dominion Resources (D) everntually started to take off because people wanted stocks that offered dividends and "safety."

Meanwhile, if you were chasing tech shares in early 2000 because it was a "hot" sector, then you were in for a big, big fall.

As a contrarian investor, however, make sure, that it's the sector that is "cold" and not your particular stock. For example, Motorola (MOT) is struggling to compete with Apple (AAPL - Get Report) and Nokia (NOK - Get Report), which are all in the hot mobile device "space."

If you own shares in a bad company, then don't expect the rising tide of a good sector to lift your boat too much. Bottom line: If you want to own a stock in a hated sector that will eventually come back, then make sure it's the best one in that sector.

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 0.00%
KO $40.30 0.00%
NOK $7.62 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs