The first quarter of the year is frequently known to follow a seasonal pattern. Stocks that have suffered poor valuations, as well as sector laggards, generally do well in this early part of the year.

“Lower valuation stocks have outperformed peers by an average of 420 bp in 1Q during the past 35 years vs. just 170 bp in all other quarters. Buying laggards has also performed well early in the calendar year, which is notable given the strategy’s extremely poor long-term cumulative returns,” say Goldman Sachs analysts Stuart Kaiser, David J Kostin, Amanda Sneider, Ben Sneider, Rima Reddy and Aaron Woodside in their ‘US Thematic Views’ research note of January 2.

Laggards and low valuation stocks likely to do well in Q1

Goldman Sachs has short-listed the following 40 stocks that could stage a reversal in the first quarter of 2014. These are companies which, compared to their sector peers, were poorly-valued laggards during 2013.

stocks

Let’s take a closer look at the first two stocks in the list.

Cliffs Natural Resources

Cliffs Natural Resources Inc(NYSE:CLF) is an international mining and natural resources company that is a major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal.

For the third quarter of 2013, Cliffs Natural Resources Inc(NYSE:CLF) reported EPS of $0.68 which missed consensus by $0.03. However, revenue of $1.55B beat analysts’ estimates by $70M. The results were impacted favorably by cost reduction measures and higher iron ore realizations.  “We are pleased with the third quarter’s operating performance and financial results. During the quarter, we cut costs across the board, improved year-over-year sales margin, and lowered our full-year capital expenditures outlook,” said James Kirsch, Cliffs’ Chairman of the Board.

November last year the company announced that it will indefinitely suspend its Chromite Project in Northern Ontario by the end of the fourth quarter of 2013, “…given the uncertain timeline and risks associated with the development of necessary infrastructure to bring this project online.”

Last month analysts at Clarkson Capital commenced coverage on the stock with a Market Perform rating and a price target of $23.00.

The stock closed Friday at $25.05, down 3.02%.

Quest Diagnostics Inc.

Quest Diagnostics Inc (NYSE:DGX) is a leading global provider of diagnostic information services that patients and doctors need to make better healthcare decisions. The company offers diagnostic testing services through its network of laboratories and patient service centers, and consultations through its medical and scientific staff.

The company declared Q3 EPS of $1.02, in line with analysts’ forecasts. However revenue of $1.79B missed consensus by $0.05B. Quest Diagnostics Inc (NYSE:DGX) also trimmed its guidance for full year earnings and revenue for 2013FY – and is now expecting a decline of revenue of 3.5% year-on-year and EPS in the range $3.90 – $3.95.

Analysts expect Q4 EPS of $0.93 and full year EPS of $3.90.

Analysts at JMP Securities commenced coverage of Quest Diagnostics Inc (NYSE:DGX) last month with a Market Perform rating.

The stock closed Friday at $52.72, down 0.25%.