Following the herd can make you money. After all, there’s nothing wrong with finding the latest momentum play and riding it for big gains. The difficult part is knowing when to jump off before the train derails.
But the real secret to building wealth? Going in the opposition direction. Some of the best stocks to buy are those that no one wants … yet.
The old adage is to buy when there’s blood in the streets, which is just a dramatic way of saying to buy beaten-down stocks that have turned into deep values. Thus, they’re “contrarian” plays — you think they’re going up when everyone thinks they’re going to keep going down.
It takes some gumption, but if you’re willing to go against the grain and ride things out until the tides turn, it can result in some boffo gains.
As a note: Not every beaten-down stock is going to come back. Just about every publicly traded company that has filed for bankruptcy protection is proof of that. So … how do we leave the chaff behind and get into the good wheat?
We’ve dug into some not-so-hot stocks to deliver 10 of the best contrarian stocks to buy in the new year:
Contrarian Stocks to Buy in the New Year: Disney (DIS)
Despite all the Star Wars mania you could want, Walt Disney Co (NYSE:DIS) has been hurting over the last year.
The culprit: ESPN.
The ubiquitous sports network was once a huge cash cow for the media giant. But as other sports outlets have cropped up recent years — and as consumers increasingly cut the cord — Disney and its lucrative ESPN revenues have started to falter. Disney stock is flat over the past year versus a double-digit performance for the S&P 500 as a result.
But DIS could be one of the best stocks to buy for 2017.
ESPN has been weighing down a company that’s firing on so many other cylinders. Not only is Rogue One a monster hit in its own right — grossing more than $600 million so far — but its rampant success should translate into a record-breaking performance for Episode VIII out this year. Meanwhile, Disney has plenty of other Star Wars and Marvel offerings coming down the pike this year. Also, theme park attendance is rising, and consumer products continues to perform well.
It’s just ESPN … and that’s becoming less of a problem each day.
Disney’s a well-loved company, but the stock has fallen out of favor. That won’t be the case by the end of 2017.
Contrarian Stocks to Buy in the New Year: Trinity Industries (TRN)
But the effects were far more widespread, impacting almost everything that even touched oil — including not-so-obvious victims such as Trinity Industries Inc (NYSE:TRN).
Even if you haven’t heard of TRN, odds are that every driller in the Bakken or Eagle Ford has. Trinity is one of the world’s largest producers of railroad cars — especially tanker cars. With no pipeline infrastructure in these areas, energy producers had to use tanker cars and crude-by-rail operations to ship their product to market. Orders at TRN (and its share price) surged during the boom.
Then the bottom fell out.
Still, the recovery is underway, and for several other reasons, Trinity could be one of the best comeback stocks to buy for the new year. best contrarian stocks to buy.
First, President-elect Donald Trump loves fossil fuels. Trinity makes tank cars and coal hoppers, so it could get a major boost as Trump’s policies kick the sector into high gear. Secondly, rising oil prices have more people drilling. And crude-by-rail is still one of the easiest ways to get oil out the major producing regions.
TRN shares trade roughly 50% below their boom peak, so there’s still all sorts of room for gains in this contrarian play.
Contrarian Stocks to Buy in the New Year: AK Steel (AKS)
OK, so … steel has been a contrarian play for what seems like years. The sector could never seem to get it together after the commodity bust during the Great Recession. U.S.-based steel makers have been particularly hit hard as cheap Chinese imports have crushed earnings. Mini-mill operator AK Steel Holding Corporation (NYSE:AKS) has been one of those hit worst.
At the risk of being part of the financial media who cried wolf, I believe AKS could be one of the top contrarian stocks to buy in 2016. At the least, its potential has started to bubble up in recent months.
Trump has pledged to spend a pretty penny of new infrastructure projects, and a key ingredient is that U.S.-made steel. Additionally, tariffs and other protective measures have helped reduce the bleeding at AKS and other steelmakers; Trump has only promised to strengthen these measures.
Analysts already estimate profits in AK Steel’s next quarter, and the company hasn’t pulled off a quarter in the black for some time. If that comes to pass, it could turn quite a few bears into bulls.
Contrarian Stocks to Buy in the New Year: T. Rowe Price (TROW)
One of investing’s longer but still fast-growing trends is the rise of exchange-traded funds and indexing. Investors big and small are running increasingly more money through index funds.
That’s a considerable problem for active mutual fund managers like T. Rowe Price Group Inc (NASDAQ:TROW).
While TROW has surged amid the market’s “Trump Bump,” the firm and its shares were suffering right up until it, because the rise of indexing hasn’t gone away.
And still, investors might want to consider T. Rowe Price this year.
That’s because TROW is focused on retirement plans, 401ks and IRAs. It’s one of the largest providers of such plans, and as a result, it has garnered more than $776 billion in assets under management. T. Rowe collects a pretty penny for managing those assets, which continue to grow. After all, you’re basically stuck with whatever 401k plan your workplace chooses.
Additionally, TROW is one of the better active managers out there. And given its size, its fees are pretty reasonable for its market-beating performance.
As a result, T. Rowe Price is lumped in with “lesser managers” when looking at the indexing vs. active problem. But that just makes TROW a great contrarian buy until the rest of the market see what fruits the company will bear.
Contrarian Stocks to Buy in the New Year: Colgate-Palmolive (CL)
Consumer staples are supposed to be boring stocks. And Colgate-Palmolive Company (NYSE:CL) fits that bill. After all, what is more boring than toothpaste, dog food and laundry soap?
Of course, Colgate’s problem isn’t a sudden consumer turn away from washing their clothes or teeth — it’s the whims of the currency market playing it for a sucker.
One of CL’s best traits is that it derives the bulk of its revenues from overseas markets. Only 20% of the company’s sales come from North America; in fact, the greatest piece of the pie comes from Latin America, at 27%. That makes Colgate one of the best plays on emerging middle classes, while owning a domestic large-cap stock.
But declines in currencies such as those of Mexico and Brazil have eaten into Colgate’s earnings. Trump’s “wall” talk, rising interest rates and a muscular U.S. dollar have all conspired against the stock, too.
I see this as an opportunity to snag one of the best consumer staples firms out there for a song. CL shares are about 13% below their 52-week high and haven’t caught up to the market’s recent gains. This is a blue-chip value, no doubt about it.
Contrarian Stocks to Buy in the New Year: Transocean (RIG)
To say that deepwater drilling has been devastated would be putting it mildly.
Oil’s crash over the past two years or so scared most investors out of the industry. E&P firms simply couldn’t make money with these sorts of projects.
Naturally, Transocean LTD (NYSE:RIG) suffered as a result. RIG’s profits disappeared, cash flows dwindled, and the firm was forced to cut its dividend during the downturn.
But Transocean could rise again in 2017.
OPEC’s recent cuts to production seem to be working early on, and overall, oil prices have rebounded over the past few months. Yes, deepwater drilling doesn’t still make a whole lot of sense at $55 per barrel … but it’s getting close. And the trend higher is enough for the larger energy firms to not cancel current long-term projects.
Heck, it’s enough for them to start thinking about tapping the Gulf again.
This is what RIG and other deepwater drillers have been waiting on. Already, Transocean has seen some upward earnings revisions on more drilling activity, and higher prices will only send more business their way.
If oil prices continue to rise as expected, contrarian investors in RIG will be sitting pretty over the next 12 months.
Contrarian Stocks to Buy in the New Year: EZCorp (EZPW)
One of the best contrarian picks for 2017 is a stock that many people haven’t heard about: EZCorp Inc (NASDAQ:EZPW).
This isn’t a household name, but it can serve as a lifeline (albeit an expensive one) for those who need it.
EZPW operates pawn shops and various pay-day lending stores throughout the U.S., Mexico and Canada. Its customers typically have spotty credit histories, so it has a lucrative business based on the high interest rates it can charge.
Those high rates have been in the crosshairs of regulators and various pieces of regulations have sought to stem the amount of interest EZPW and its sisters can charge. The government’s new Consumer Financial Protection Bureau has specifically targeted these sorts of firms.
But with Trump in, many financial regulations are likely out. The CFPB in particular looks to be in Republican-controlled Washington’s scope.
Shares have already risen on that potential, but still are well below the post-recession peaks.
Contrarian Stocks to Buy in the New Year: First Solar (FSLR)
Solar is going to stink in 2017. It just is.
So why does that make industry leader First Solar, Inc. (NASDAQ:FSLR) a contrarian stock to buy over the next 12 months?
FSLR’s woes are twofold. First, many utilities scheduled their projects and build-outs to be completed before 2016 ended, as lucrative tax credits were scheduled to be finished at that time. However, while those credits were extended, the election of Donald Trump threw those credits into question.
But longer-term, the future is rosy.
While developments here at home may falter, the rest of the world is still humming right along in terms of solar adoption. That should help FSLR get over the hump. Also helping is its industry-leading cost structure, an investment in 8Point3 Energy Partners LP (NASDAQ:CAFD) and a strong $2 billion in cash on its balance sheet.
First Solar will kick the can and get through the current malaise with ease. When investors get hot on solar again, they’ll see they can buy an industry leader at a single-digit P/E.
That’s not a pretty way to invest, and FSLR will likely give you a few gray hairs. But it’ll be worth it, and there’s always Just For Men.
Contrarian Stocks to Buy in the New Year: Kroger (KR)
You wouldn’t peg a grocer as a growthy momentum stock, but that’s what Kroger Co (NYSE:KR) was until it started to miss expectations.
As a result, Kroger has slipped into value territory.
For those not in the know, Cincinnati-based Kroger operates as the largest publicly traded pure-play grocery store network in the country. These stores play a variety of income and demographic levels — bargain shoppers and truffle hunters alike. This mishmash of consumers has driven Kroger’s revenues to in excess of $100 billion per year.
Troubling analysts is that Kroger’s growth has slowed to a crawl. But KR has a few aces up its sleeve.
For one, its online ordering experiment is bearing fruit; ClickList is becoming a huge hit with internet-savvy millennial customers. Revamped in-house organic and natural brands — and their higher margins — are also helping to drive projects. These projects, as well as expanded pharmacy and convenience store operations, should drive KR back into favor.
Meanwhile, a roughly 20% drop in Kroger shares over the past year has ensured that investors aren’t overpaying at this point.
Contrarian Stocks to Buy in the New Year: Apple (AAPL)
How far has Apple Inc. (NASDAQ:AAPL) fallen?
Well, to the point where it’s no longer considered a no-doubt growth stock, but a contrarian stock to buy.
Still, that’s better than a “sell” call, right?
Apple hasn’t had a smooth go of things over the past year. Its all-important iPhone sales have slowed, the Apple Watch has stalled, and the firm was hit with a major court decision that favored its chief rival, Samsung Electronics (OTCMKTS:SSNLF).
So while Apple did manage to put up roughly 10% gains in 2016, that was only good enough to match the market, and far behind many of its growthier tech peers. AAPL simply is no longer a market darling.
That’s OK, though. We’re talking about contrarian investing.
Apple’s cash remains a fantastic reason to love this stock — and in fact, even more so now than ever. With Trump looking to stem corporate tax bills for repatriating overseas cash, Apple investors could be a few months away from a massive set of buybacks, or perhaps a big special dividend. Some analysts have postulated that Apple could move about $124 billion back to U.S. shores for dividend purposes.
Even if it doesn’t happen, Apple still mints profits and is a cash machine that trades for less than 12 times future earnings projections right now.
Oh yeah. And the iPhone 8 could be one of the biggest overhauls ever, sparking the much-needed rejuvenation to smartphone sales that the company needs.
AAPL might be out of favor now, but it could be a gem by the end of the year.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.