Contrarian Stock Ideas — value investing and contrarian investing go hand-in-hand.
Indeed, both these strategies revolve around the central theme of mispricing and identifying opportunities that the market has not yet priced in, or scenarios where the market has overreacted to a sudden change in circumstances.
And if you’re looking for contrarian or value style ideas, Credit Suisse Equity Research’s Out on a Limb contrarian equity research report has plenty of ideas.
Here’s a quick roundup of some of the best stock ideas within the report.
Contrarian Stock Ideas to Consider Today: Caterpillar Inc. (CAT)
Caterpillar (CAT) is one of the leading equipment manufacturers and is well diversified geographically and by end market. Despite the slowdown in global machinery sales, Caterpillar remains a premium brand in the market.
Caterpillar has managed to maintain its gross margins at around 28% despite falling demand for its equipment and has maintained R&D expenditure record levels. $1.5 billion in cost savings are expected over the next few years the company still has plenty of options available to it regarding cutting costs and diversifying into new markets.
Testing The Profitability Of Contrarian Trading Strategies Based On The Overreaction Hypothesis
Credit Suisse believes that Caterpillar’s earnings will reach a cyclical low point this year at $3.50, before moving higher to $4.05 next year as end markets begin to move off their base.
Contrarian Stock Ideas to Consider Today: Kellogg Company (K)
According to Credit Suisse, Kellogg (K) represents the best risk-reward in the consumer goods space. Restructuring savings provide unique visibility into 7 to 9% EPS growth this year, and it’s expected that new products will drive stronger sales performance as the year progresses.
The company currently trades at a discount to its peer group and this discount should close as revenue growth picks up.
Contrarian Stock Ideas to Consider Today: Manitowoc Company Inc (MTW)
After spinning off its Food Service segment, the stand-alone Manitowoc (MTW) cranes company should be able to put a renewed focus on driving operating results. While management is forecasting flat revenues and -4% margins this year, longer-term management is committed to achieving double-digit margins regardless of top line growth.
Edward Chancellor part 1: ‘intelligent contrarians’ should follow the capital cycle
Finally, recent M&A rumblings in the space driven by international acquirers should buoy the share price – a buy-out is now even more likely post spin.
Contrarian Stock Ideas to Consider Today: Sysco Corporation (SYY)
Sysco’s (SYY) EBITDA has been essentially flat since 2010 but recently announced an acceleration of its strategic repositioning plan in an effort to drive upside to its previous three-year operating income goals.
The company now believes it can generate at least $500 million in incremental EBIT by the end of 2018.
The announcement provides the strongest signal yet that management is keenly focused on reducing costs, improving operational execution, and driving earnings higher at this historically underperforming but leading franchise.
Contrarian Stock Ideas to Consider Today: Patterson Companies, Inc. (PDCO)
Patterson (PDCO) should benefit from an expected pickup in equipment sales as the largest domestic dental equipment vendor with exclusive access to DENTSPLY SIRONA’s high-end technology. Further, Patterson currently trades at a significant discount to its listed peer Henry Schein. Patterson currently trades at 8.6x EV/EBITDA vs. Henry Schein at 12.6x. As domestic dental consumable and equipment growth picks up, Patterson’s sales should start to reflect this.
ValueWalk is always on the lookout for candidates for its Value Fund Interview Series. If you’d like to see a particular fund manager interviewed, or if you’re a value-orientated fund manager looking to put yourself forward for an interview, please do email Rupert at firstname.lastname@example.org.
Previous interviews in the Value Fund Interview Series can be found here. . Additionally, we are a member of Yahoo Finance’s exclusive Contributors network and typically post our interviews on our Yahoo Finance Tumblr Blog.
Many academics claim investing is a “random walk.” We believe this to be only partially true. It is our core belief that value investing can outperform the market, hence the name “ValueWalk.” Your number one source for breaking news and evergreen content on everything value investing and hedge funds.
Check out our new free Underrated Small Cap Stocks newsletter
Also Sign Up For Our Free Newsletter and receive in-depth ebooks on famous investors