We’re now in the beginning of January 2012, and the January Effect is now set to take place: stocks that should not go up will go up, merely because those who have sold them back in December will buy them back in January. The January Effect will completely fade in mid February, and it’s at that time that most investors will be able to distinguish between good stocks and bad stocks. Now as for the worst performing stocks, they’re not that hard to find…

In my article, investment strategies for 2012, I took a glimpse at which stocks should be avoided in 2012. This article will be much more detailed about this point, and will focus on the worst stocks to buy in 2012. I have categorized these stocks based on the industry of their respective companies…

Worst Bank Stocks to Buy in 2012

• BAC: Bank of America was probably the worst worst performing large cap stock in 2011, the stock went down 58%, and reached a second all time low of $4.92. What makes anyone think that this stock is set to recover in 2012? The only time that this stock will go up is in January (this month) because of the January Effect. Other than that, this stock is doomed in 2012. There is just too many problems associated with Bank of America, and I’m not sure that the current management at BAC is doing enough to address these problems.

• C: Although C did slightly better than BAC in 2011, it still was one of the worst performing stocks in the American markets. C was down 44% in 2011, which reduced Citigroup’s market capitalization to below $100 billion (a number not seen since 2009). C’s prospects are better than those of BAC’s, but still, C may need yet another reverse split in 2012 if the trend continues (and, from where I’m standing, it will).

Note that all European bank stocks will be even worse performers than BAC and C, but I figured that it’s a given, considering what Europe is going through and what it will go through in 2012.

Worst Insurance Stocks to Buy in 2012

• AIG: AIG (American International Group) is one stock that literally was the main reason behind many suicides back in 2008-2009. It still is a very dangerous and bad stock. The stock went down nearly 60% in 2011 and is set to lose more in 2012 with all the troubles in Europe and AIG’s huge exposure to Europe.

• MFC: MFC (Manulife Financial Corporation ) is another really, really bad insurance stock. It went down around 40% in 2011, and again, will probably lose even more than 40% in 2012.

Worst Energy Stocks to Buy in 2012

• RIG: I used to love RIG, a lot. I discussed (a year ago) that offshore drilling companies were undervalued, but it’s not the case anymore. You see, offshore drilling companies are companies that suffer from a lot of politics and regulations. RIG is a good stock to buy, but in 2012, it will continue its slide that pulled it down nearly 45% in 2011.

• BP: BP had an average year in 2011, the stock went down only 3%. But, 2012 will hold a lot of challenges of BP. Its revenue already diminished because of the assets sales back in 2010. Also, demand on oil will be much lower because of a slower demand in emerging economies such as China (China already signaled that it will experience a smaller growth in 2012 than in its previous years).

Worst Technology Stocks to Buy in 2012

• RIMM: Research In Motion missed the train, and now it has to pay the penalty. RIM is losing customers at an insanely fast rate, and will never recover. Of course, there are rumors here and there about companies offering to buy RIM, but we’ve established that nobody needs nor wants RIM, including Amazon. RIMM has lost 75% of its value in 2011. I’m not sure if RIMM will still be listed in 2012, or, if it won’t go with a reverse split.

• NOK: Nokia is another company that refused (similarly to RIM) to ride the Android bandwagon. Result: NOK has lost its prestige as one the most influential mobile phone producers in the world, and it’s now a company that receives money (as aid) to advertise its own phones (I’m talking about the $30 million or so it received from Microsoft). NOK is highly overpriced, even though it lost 53% in 2011. I think NOK will be halved in 2012.

• NFLX: Netflix got a taste of its own medicine when it tried to rob people at the wrong time (during a recession) by hiking its fees. The price that Netflix paid is the loss of many many subscribers, and the emergence of competitors in the streaming business (both of which I have warned of a long time ago). NFLX reached an all time high of $304 back in July, and now it’s trading at less than 1/4 of this price. Ah, greed!

Worst Internet Stocks to Buy in 2012

• LNKD: LinkedIn had no reason to go public whatsoever, and the valuation of the company by the market is just outrageous. LNKD is trading at a forward price to earnings ratio of 1,244. This is extremely high by any standards. LNKD should be trading at no more than 1% of its current value, which would literally make it a penny stock!

• GRPN: Even worse than LinkedIn is Groupon, because while LinkedIn is making money (though not enough at all), Groupon is losing money. Groupon is losing so much money that they should create something like a reverse P/E ratio for it (a reverse P/E ratio is a term that I just invented, where you substitute the earnings per share with the loss per share to calculate the P/E). GRPN is a really bad stock and most likely there will be a huge correction in 2012 for this stock. And if you’re wondering how much Groupon is really worth, I can answer you with confidence, “not much!”.

Worst Software Stocks to Buy in 2012

• QSFT: Quest Software is a company that was once famous for its enterprise management software. Well, it was good times when spending was high and there was no competition. But nowadays IT spending is much lower in its main market (the US) and there is a competitor popping every other day or so! QSFT has lost 33% in 2011 after reaching an all time high in January. Stay clear!

• CA: Computer Associates Inc. is another company that probably all of us remember its former glory. But all that glory is lost (forever?), and all that remains is a company that still exists because of all the legacy software in the market, and because of all the IT Managers with legacy mindset. CA has lost 17% this year and the downward trend will definitely continue in 2012.

Worst Pharmaceuticals Stocks to Buy in 2012

I don’t think any of the large cap pharmaceutical stocks will perform badly in 2012, simply because the world needs more drugs to face what’s going on in Europe.

Worst Chinese Stocks to Buy in 2012

Why am I even writing this? All Chinese stocks are really, really bad, but, if you really insist, here are the worst Chinese stocks in 2012:

• YOKU: Youku.com is China’s answer to Youtube.com. We all know that there is no way, on heaven or on earth, for this company to ever make money. Why bother even considering it as an investment? This stock is not even worth 1 cent, and the market cap of YOKU should be no more than a couple of million dollars. YOKU went down 55% in 2011.

• DANG: E Commerce China Dangdang Inc. is another Chinese answer to an American website (Amazon, which is not a great investment either). Of course, DANG is now losing money and will probably continue losing for the next lifetime or so. DANG went down 83% in 2011.

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