Conventional wisdom holds that magazine cover stories are contrarian indicators - by the time a company’s success or failure reaches the cover page of a major publication the story is so well known as to be completely reflected in the stock price. Therefore, all good news is priced in and the stock can only underperform or all bad news is priced in and the stock can only outperform.

While simplistic, the magazine cover indicator now has the support of recent academic research. This research did find that cover story headlines on Business Week, Fortune and Forbes tended to indicate that the mood (bullish or bearish) of the story had run its course in the market.

As a result of this research, I have decided to develop a portfolio of stocks based on using those three magazine’s covers as a contrary indicator. I also track this portfolio on StockPickr. This week’s results:

Business Week
Markets In Turmoil
By rushing into the mortgage business big-time, homebuilders helped fuel the housing crisis. Now they’re hurting—and so is Wall Street

Contrary indicator: Buy Homebuilders. 

Fortune: Going Nuclear

The industry is gearing up to build its first new plants in decades. But are we comfortable with that? Join Fortune’s David Whitford on a road trip into America’s nuclear future.  (more)

Contrary Indicator: Sell TXU, Will Uranium Price Top?