Should You Be Buying 2016 Market Leaders Or Laggards Heading Into 2017?

Overall, 2016 has been a great year for the stock market. The SPDR S&P 500 ETF Trust SPY is on track to finish the year up roughly 11 percent. Traders are certainly entitled to take the last few days of the year to celebrate their 2016 wins and reflect on successes of the past year. But once the New Year fireworks go off, the slate is wiped clean. Traders must figure out whether they are going to stick with what worked in 2016 or change up their game plan in the year ahead.

Of course, traders face this same dilemma at the same time every year. Here’s a look at how things worked out in 2016 for traders who stuck with what worked in 2015 and for traders who made a year-end contrarian bet last year.

Letting It Ride

Traders who chose not to take profits and ride the momentum of 2015’s hottest stocks in 2016 fared pretty well. Here’s a breakdown of how a portfolio of the five best-performing stocks of 2015 fared in 2016:

2015 Performance: +134.4 percent. 2016 Performance: +12.6 percent.

2. Amazon.com, Inc. AMZN

2015 Performance: +117.8 percent. 2016 Performance: +14.8 percent.

3. Activision Blizzard, Inc. ATVI

2015 Performance: +94.1 percent. 2016 Performance: -5.8 percent.

4. NVIDIA Corporation NVDA

2015 Performance: +67.1 percent. 2016 Performance: +263.7 percent.

5. Hormel Foods Corp HRL

2015 Performance: +54.5 percent. 2016 Performance: -10.4 percent.

Going Against The Grain

On the other hand, traders that opted to buy a basket of 2015’s worst stocks fared relatively well in 2016 as well. Here’s a look at how the five biggest 2015 laggards performed:

1. Chesapeake Energy Corporation CHK

2015 Performance: -76.7 percent. 2016 Performance: +68.6 percent.

2. CONSOL Energy Inc. CNX

2015 Performance: -76.5 percent. 2016 Performance: +144.4 percent.

3. Southwestern Energy Company SWN

2015 Performance: -73.8 percent. 2016 Performance: +53.4 percent.

4. Freeport-McMoRan Inc FCX

2015 Performance: -70.1 percent. 2016 Performance: +104.9 percent.

5. Fossil Group Inc FOSL.

2015 Performance: -66.8 percent. 2016 Performance: -27.9 percent.

The Results Are In

As it turns out, buying the 2015 S&P 500 leaders and buying the laggards both made for very profitable trading strategies in 2016. Overall, the five leading stocks generated an average 2016 return of +54.9 percent. However, the laggards topped even that impressive performance by delivering an average 2016 return of +68.6 percent.

Stocks To Consider For 2017

For traders who expect a repeat performance out of the market in 2017, here are the five worst-performing 2016 stocks to consider for a 2017 laggard portfolio:

• Endo International plc - Ordinary Shares ENDP.
• First Solar, Inc. FSLR.
• Tripadvisor Inc TRIP.
• Perrigo Company plc Ordinary Shares PRGO.
• Vertex Pharmaceuticals Incorporated VRTX.

For traders who want to play the stocks with the hot hand again in 2017, here are the five best-performing 2016 stocks to consider for a 2017 leader portfolio:

• NVIDIA Corporation.
• ONEOK, Inc. OKE.
• Freeport-McMoRan.
• Computer Sciences Corporation CSC.
• Spectra Energy Corp. SE.

Disclosure: The author is long CNX.