Some investors are finding out that there are holes in the Wall Street cliché that a rising tide lifts all boats. As stocks in general have surged back from the bear market low, a handful have not only missed the rally, but lost ground.
In fact, 46 stocks in the Standard & Poor's 1500 index are lower than when the market hit its 12-year-low on March 9.
The left-behind stocks stick out even more, as the stock market has soared nearly 50% from that time in a jump that's been one for the record books because of how far it has come so quickly.
Even amid a bull market, investors are avoiding stocks that have faults. "There have been companies and stocks that have been completely left in the dust," says David Sowerby of Loomis Sayles. "These are the unfortunate souls that nobody wants to take to the prom."
Focusing on stocks that have been overlooked by the market's rally this year is like looking for weeds in a forest. The rally has been very broad, with 97% of the stocks in the S&P 1500 up or flat since the March 9 low. More than 93% are up by 10% or more.
So why do these few stocks have the dubious distinction of falling while the broad market has had one of its fastest, most intense rallies ever?
•Growing competition. MetroPCS, pcs a wireless telecom carrier, is the worst-performing stock in the S&P 1500 since March 9, falling 38% to $9.06.
The company's unlimited calling plan is under assault by similar offerings from Sprint Nextels and TracFone, says analyst William Power of Robert Baird. Since virtually every "man, woman and child" already has a cellphone, the battle for any corner of the market with potential "is more crowded by the day," he says.
•Lingering fears about some financial firms. Frontier Financial, ftbk which operates banks in the Pacific Northwest, is down 37% from March to 75 cents a share. Investors are avoiding any banks they fear may have difficultly surviving, says Tim Coffey of stock research firm Fig Partners.
Frontier in July agreed to be acquired by a so-called blank-check firm that buys companies, SP Acquisition Holdings, for roughly 52 cents a share.
•Company-specific issues. Biotech company Genzyme genz is one of the larger firms to miss out on the rally, falling 10% to $49.36. It is working through production issues with several key drugs, says Salveen Kochnover of stock-research firm Collins Stewart. "Any stocks with specific issues are just not appreciated," she says.
•No correction to repair. Some stocks didn't rally back largely because they held up relatively well during the worst of the bear market. Teen retailer Hot Topic hott fared better than some rivals late last year because it sold vampire-inspired goods when it was trendy, says Holly Guthrie of money-management firm Boenning & Scattergood. Hot Topic is down 10% since March.
And Corinthian Colleges coco rose 6% last year as investors bet more workers would go back to school for retraining, says BMO Capital's Jeffrey Silber. The stock is down 2% since March.
Most of the market's move this year was "undoing the damage," says Jack Ablin of Harris Private Bank. From this point on the winners will be separated from losers in a smaller economy. "If the stock was never hammered, there's nothing to undo."