May 26 (Bloomberg) -- What do General Motors Corp., Eastman Kodak Co. and Sunoco Inc. have in common?

Each of them has been left behind in this year’s stock- market rally.

Most stocks in the Standard & Poor’s 500 Index are up. Indeed, 111 of them have risen 20 percent or more.

Yet 12 percent of the stocks in the index are down 20 percent or more for the year. As a bargain hunter, I study such laggards because I love to buy good companies on bad news.

To be sure, many of these dawdlers are getting what they deserve. For example, I don’t want to own General Motors, even at a price down 55 percent this year. Buying shares of a company facing bankruptcy is almost always a bad idea.

If I wanted to speculate on General Motors, I would buy its bonds. Bondholders would control only 10 percent of the stock in a reorganized GM under the company’s most recent plan. The government would get 50 percent, the United Auto Workers 39 percent. However, there’s a fair chance bondholders will eventually win a better deal in court.

How about Eastman Kodak Co., down 59 percent? I think it’s possible that the right management could take this disaster and turn it into a profitable, though smaller, enterprise. However, I won’t buy the stock because Kodak’s debt is more than twice its net worth.

Sunoco’s Strengths

Yet among the laggards are several companies that I do believe can repay brave investors handsomely over the next one to three years. They include Sunoco,Chubb Corp. and Norfolk Southern Corp.

Sunoco, based in Philadelphia, primarily refines petroleum and markets gasoline. This “downstream” end of the energy industry is out of favor because Americans have cut their driving, reducing gasoline sales. U.S. drivers still consume about 9 million barrels of gasoline daily, according to the Energy Information Administration. That’s down from 9.6 million in August 2007.

My guess is this trend will last only a year or less. That’s why I like refinery stocks. Also, it’s noteworthy that no new refineries have been completed in the U.S. since 1976. When gasoline demand rebounds, U.S. refineries will run flat out.

True, we import a lot of gasoline, but that has its own problems such as dependence on regimes abroad that don’t always behave as we’d like.

Sunoco offers a 4.4 percent dividend yield, which appears amply covered by earnings. The company earned a 29 percent return on shareholders’ equity in 2008, indicating healthy profitability. And yet the stock, down 37 percent this year, sells for a little more than three times earnings.

Chubb’s Streak

Chubb, a property and casualty insurer located in Warren, New Jersey, has been profitable for at least 22 consecutive years (as far back as my Bloomberg database goes).

Many insurance companies only break even on operations, with claims and expenses balancing premium income. They make their money on investments, which is one reason so many insurance stocks plunged in 2008.

Chubb, however, made a profit on its basic insurance business in 2008. For every $100 collected in premiums, it paid out $58.32 in claims and had $30.18 in expenses. So its “combined ratio” was only 88.5 percent, considered very good in the industry.

Overly Grim Outlook

This year, Chubb shares have dropped 24 percent. The company reported $266 million in investment losses for the quarter, much of it in leveraged-buyout funds and distressed debt.

I think investors have probably overdone the gloom in assessing Chubb’s outlook. The stock now trades for seven times earnings and slightly less than book value. It also provides a 3.6 percent dividend yield.

Another unloved stock I like is Norfolk Southern, down 25 percent this year. This railroad serves 22 eastern states and the Canadian province of Ontario. The amount of coal, cars and chemicals it transports over its 21,000 miles of track (16,000 owned) has declined with the recession.

No one knows when the economic slump will end, though my guess is in the fourth quarter. But by falling more than 50 percent since August 2008, Norfolk Southern stock has already discounted considerable damage.

Traffic Rises

So far, at least, the railroad has stayed profitable. It earned 47 cents a share in the first quarter. That was down from 76 cents in the same quarter of 2008, but still above the company’s first-quarter earnings in 2002, 2003 and 2004.

If oil prices tend to rise over the next decade, as I think they will, railroads such as Norfolk Southern will see further traffic increases, as they are an energy-efficient way to transport goods. At the same time, if the demand for coal rises, as it well may, Norfolk Southern will be carrying more coal to energy-hungry East Coast cities.

The stock sells for about eight times earnings and yields 3.9 percent in dividends.

Disclosure note: I have no long or short positions in the stocks discussed in this column.

(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)

To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com.

Last Updated: May 26, 2009 00:01 EDT