Investors searching for the next big rotation may find it hiding in plain sight, as Goldman Sachs says one of Wall Street's most persistent buy-the-dip patterns is flashing again heading to the new year.
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In a note shared Thursday, the investment bank crunched 23 years of market data and found a durable seasonal pattern: laggards from the prior year tend to outperform the S&P 500 in the first quarter of the new year.
Why The ‘Laggards Trade’ Works
Investors often rotate portfolios in the new year, potentially seeking mean reversion in beaten-down names.
The firm defines a laggard as any stock falling into the bottom third of annual S&P 500 performers by share price, sector-relative return, or drawdown from the yearly peak.
While not every year delivers upside from this tactic, the track record is strong enough to make it a go-to seasonal trade.
In 2024, for example, the trend failed badly—with a hit rate of just 23%—but bounced back in 2025 with 53% of laggards outperforming.
Overall, the bank says the pattern appeared in 14 of the past 23 years, with laggards generating a robust edge over the S&P 500 in the first quarter.
“Prior year’s laggards have a tendency to become leaders in Q1 of the following year,” said the firm analyst Deep Metha.
Laggards Of 2025 Underperformed The Market Sharply
Goldman notes that this year's underperformers look even weaker than usual.
As of early December, the average 2025 laggard is down 19% in absolute returns and a steep 36% relative to the S&P 500. Both readings sit below long-term averages of negative 17% and negative 28%, which suggests a deeper pool of beaten-down names than normal.
When sorted by performance, laggards in Materials, Consumer Discretionary and Healthcare have struggled the most versus the market. Energy and Industrials laggards have held up better, though still negative.
Goldman's Laggards Shopping List
Goldman identified several stocks they believe are mispriced by the market and could lead a first-quarter rally in 2026. These include:
- Fortinet Inc. (NASDAQ:FTNT), Pool Corp. (NASDAQ:POOL), and Hormel Foods Corp. (NYSE:HRL): All have Buy ratings from Goldman analysts, despite most of Wall Street being neutral or bearish.
- Monday.com Ltd. (NASDAQ:MNDY), ConocoPhillips (NYSE:COP), and AECOM (NYSE:ACM): These names have earnings estimates for 2026 and 2027 that are at least 3% above consensus.
- Pinterest Inc. (NYSE:PINS), Viper Energy Inc. (NASDAQ:VNOM), and Fortune Brands Innovations Inc. (NYSE:FBIN): Identified for their expanding free cash flow margins and high FCF yields above 5%.
- Ares Management Corp. (NYSE:ARES), Workiva Inc. (NYSE:WK), and e.l.f. Beauty Inc. (NYSE:ELF): Expected to post sales growth above 10% annually through 2027.
- Adobe Inc. (NASDAQ:ADBE), Iron Mountain Inc. (NYSE:IRM), and Regal Rexnord Corp. (NYSE:RRX): These stocks show return-on-capital trends that often lead to valuation recoveries once macro pressure eases.
- Constellation Brands Inc. (NYSE:STZ), Vertex Inc. (NASDAQ:VERX), and Werner Enterprises Inc. (NASDAQ:WERN): Expected to rebound in margins next year after a tough 2025.
As always, the laggard-to-leader play isn’t guaranteed. But if the calendar is any clue, January 2026 might just start with a surge from names most investors had given up on.
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