Buying stocks after they've been punished by other investors is a form of contrarian investing. Buying them while they're being punished is financial masochism.

The difference is one of price momentum and its immediacy. Several respected studies, beginning with a landmark 1993 paper by Narasimham Jegadeesh and Sheridan Titman titled "Returns to Buying Winners and Selling Losers," have shown that in the short term, price momentum in a certain direction predicts more of the same. That is, stocks that underperformed last month are more likely than not to do so again this month. Contrarian investors, while looking for past underperformers that now sport alluring valuations and turnaround potential, would do well to look for a touch of recent price momentum, too.

The three companies below were in the bottom 25% of S&P 500 members by share price performance over the past five years but were in the top 25% over the past few months. Each has reported operational improvements lately, and each seems reasonably priced.

Yahoo

In February 2008, I wrote that Microsoft' $44.6 billion offer for Yahoo was too lavish, and that the cash would have been better spent on a bigger dividend and more stock repurchases. Remarkably, Yahoo rejected the deal. Its stock market value is now just under $23 billion, and Microsoft indeed has a bigger dividend, fewer shares and a higher stock price. Yahoo is more profitable now than it was a year ago but less profitable than it should be, turning 11 cents of each sales dollar into operating profits over the past year, compared with 36 cents for search king Google and 17 cents for newly independent media specialist AOL. Low margins, however, represent improvements waiting to be made, and Yahoo has a new boss for its North American operations, a recently revamped email offering and a new search partnership with Microsoft.

Monster Worldwide

Online job search specialist Monster Worldwide has been hurt by America's long period of high unemployment. Its sales topped $1.3 billion as recently as 2008, but fell below $1 billion last year and are expected to remain there this year. There are some promising signs, however. Last quarter the company reported a 4% sales gain compared with a year earlier. That's a modest number but a big improvement over the 4% sales decline Monster reported the quarter before. Perhaps more important, bookings last quarter jumped 23%, suggesting faster sales growth is ahead (and with it, perhaps, continued job growth for the nation). Monster is expected to return to profitability next year. Management noted recently that incremental sales would come with 50% operating margins, which means that further economic improvement could lift the company's earnings per share in a hurry.

Apartment Investment and Management

America's homeownership rate recently fell below 67% to the lowest level since 1999. That should be giving a boost to companies that manage rental properties, but Apartment Investment and Management, a real estate investment trust, saw its share price slashed from $50 to $5 over the two years ended March 2009, partly because of its sizeable debt load and the freezing of credit markets at the time, as well as management's two-step reduction of the quarterly dividend to 10 cents from 60 cents. Shares are back to about $25, which leaves the dividend yield at a puny 1.6%, but AIM's occupancy rates on conventional properties improved last quarter and rental rates rose on its renewed leases. The company continues to pay off debt that comes due over the next few years. Many REIT investors are in it for the income, as management surely knows. If the rental market remains healthy, AIM's dividend should eventually get a boost.