One of the key principles of contrarian investing is to zig when others are zagging. Of course, there are more nuances to it than that. And unfortunately, many have taken this approach to mean buying equity units in popular sectors simply because they’re cheap. While you can occasionally profit from this tactic, you can also apply contrarianism to value stocks to buy.
Unlike acquiring growth names for their upside potential, value investing focuses on companies that are trading below their fundamentals, which can include earnings, sales or other financial metrics. However, because finding the right value stocks to buy involves greater research than getting a tip on some random social media post, they tend not to be as popular. But therein lies the contrarian appeal.
At the end of the day, any investment market is tied to human emotions. This dynamic sets up a serious risk factor for growth-based trades. Yes, they’re sexy as all heck. People are talking about them on relevant social networks. Frankly, it feels good to be part of a movement, one that has an underlying — though I would argue conflicted — moral theme of taking money from Wall Street and giving it to Main Street.
But with so many people pushing for growth — and finding them in increasingly speculative arenas — the contrarian case for value stocks to buy couldn’t be clearer. In this circumstance, zigging when other are zagging makes perfect sense.
Also, if the economy makes a rebound from the novel coronavirus pandemic, this should raise the profile of many good companies that simply suffered from an unprecedented catastrophe. Even the meme traders will recognize the value (pun intended) of rolling their profits over into underappreciated companies. Therefore, the prospect of higher prices for value stocks to buy could be much stronger than your flavor-of-the-week growth plays.
If these arguments are not convincing enough, perhaps we can just rely on common sense. With seemingly everyone betting on the growth horse, the value horse offers a better risk-reward profile. Here are some ideas for value stocks to buy that may tickle your fancy.
- Kroger (NYSE:KR)
- Suncor (NYSE:SU)
- Huntington Ingalls Industries (NYSE:HII)
- Algonquin Power & Utilities (NYSE:AQN)
- Rent-A-Center (NASDAQ:RCII)
- Verizon (NYSE:VZ)
- EZCorp (NASDAQ:EZPW)
As I mentioned for other investment topics, nothing is without risk. The main criticism for value stocks to buy is that because they lack popular appeal (especially now), you may have to wait a long time for the bullish angle to materialize — if it ever does. Please perform your due diligence and only invest what you can afford to lose.
Value Stocks to Buy: Kroger (KR)
Arguably a growth play on a temporary basis, Kroger was a crown jewel of the investment market when the Covid-19 pandemic upturned our paradigm. Suddenly, anybody that read between the lines converged onto their local Kroger stores — and other retailers carrying groceries and household goods — and bought up the essentials.
Personally, I’ll never forget the day in late February when I was stocking up on stuff for the upcoming long winter. I had already purchased the essentials and was simply stocking up my auxiliary inventory. Just when I passed by the empty toilet paper aisle, I overheard a college student proclaim, what the ****! Surely, this woke him up from his “botanically” infused stupor.
Anyways, KR stock is no longer the sexy growth trade it once was. However, this circumstance makes it one of the best value stocks to buy. With a forward price-earnings ratio of 13.4x, it offers an attractive valuation relative to the defensive retail industry.
Plus, look out for a deflationary environment as monetary precious metals are surprising underperformers, considering that everyone is yelling about inflation. This circumstance bodes well for KR stock, which is tied to an indispensable business.
A Canada-based integrated energy firm, Suncor’s claim to fame comes from its specialization in synthetic crude production from oil sands. Of course, that business became a massive liability when the coronavirus infiltrated North American borders. In seemingly one fell swoop, SU stock lost roughly two-thirds of its pre-pandemic market value. Later, with oil prices temporarily falling below zero, the situation didn’t look good.
But because of the overtly negative sentiment for Suncor, it has become one of the better value stocks to buy. First, the economy has so far recovered robustly from the dreadful lows of the pandemic. This dynamic equates to greater demand for transportation, reflected in higher oil prices. Also, real-time traffic data demonstrates that traffic volume in major metropolitan areas globally has spiked from their lows.
Currently, Suncor trades at less than 14-times forward earnings projections, which sounds like a phenomenal deal. In fairness, it’s not the greatest statistic compared to value stocks to buy in the oil and gas industry. However, it’s also fair to point out that it’s difficult to assess energy plays based on the dramatic swings we’ve seen.
Ultimately, the reemergence of fossil fuels combined with Suncor’s gradual pivot to renewable solutions makes SU stock one of the more intriguing ideas.
Value Stocks to Buy: Huntington Ingalls Industries (HII)
Arguably one of the typically overlooked defense plays — not to be confused with defensive plays — Huntington Ingalls Industries specializes in developing warships for the U.S. Navy, Coast Guard and Marine Corp. As well, the company provides its services for foreign and commercial customers. From a geopolitical standpoint, HII is one of the most relevant value stocks to buy.
Unless you’ve been living in a bunker which doesn’t have communication capacities to the outside world, you know that the U.S. is mired in a very difficult relationship with China. According to a Pew Research Center report this year, Americans have strong views on China, supporting a tougher stance on hot-button issues such as human rights and economic relations. Moreover, you can find consensus across the political spectrum on these issues.
Therefore, the underlying narrative for HII stock is appealing, if only from a cynical basis. America must project power to China and that bodes well for demand. In addition, the U.S. Navy’s fleet is getting old and it will be a difficult proposition to keep it afloat for longer than their originally planned service life.
Should Republicans take control in the years ahead — personally, I think this is likely — you may expect greater military spending, which in turn suggests HII is one of the well-positioned value stocks to buy.
Algonquin Power & Utilities (AQN)
Leading the transition to a low-carbon energy future per its website, Algonquin Power & Utilities enjoys the advantage of relevance. Based on evidence from government-backed research and various academic studies, climate change is real. Now, I understand that this topic is open to debate. However, the danger to supporting the contrarian belief has always been the potentially irreversible consequences of getting it wrong.
For instance, look at the water crisis affecting the southwestern region of the U.S. Is climate change primarily responsible for the drought? I don’t know. But what I do know is that experts have been warning about this situation for years. Therefore, it’s important to adopt the precautionary principle with our planet: better to err on the side of caution than to continue a possibly harmful status quo.
With AQN stock, you have the confidence in knowing that Algonquin is part of the solution. However, shares stumbled badly — along with other value stocks to buy tied to renewables — following the Texas winter storm because it sparked fears of intermittent energy sources. But this also sets up an upside opportunity.
It’s clear that we must do something about the consequences of climate change. Likely, Algonquin — and many others — will forward innovative solutions to address such challenges.
Value Stocks to Buy: Rent-A-Center (RCII)
Before I get into my discussion on Rent-A-Center, a rent-to-own business specializing in various product categories like furniture and consumer electronics, I must provide a caveat. I’m not a big fan of the technical posture of RCII stock. The overall trend has been largely negative since mid-March of this year so there is a possibility of further downside.
With that cautionary note aside, Rent-A-Center is fundamentally one of the more intriguing value stocks to buy. Presently, RCII trades at 15.6-times trailing earnings and less than 10-times forward earnings. Primarily, the business is attractive because the consumer economy may not be as strong as some analysts believe it is. If it were, I’d question why consumer sentiment is having trouble returning to pre-pandemic averages under the Trump administration.
Also, with the personal saving rate still in double-digit territory as of the latest read (May 2021), this implies that people are not yet ready to commit to big purchases. Further, if the economy doesn’t improve significantly from here, you can expect RCII stock to increase in value.
Still, this is a risky idea among value stocks to buy, so I’d tread carefully if it appeals to you.
When the coronavirus became a reality in the U.S., virtually every equity unit in the market tumbled. And most suffered heinous losses. However, Verizon Communications was able to mitigate much of the pain, likely due to the pertinence of its business. Sure, VZ stock took a hit but at a loss of roughly 14% against levels just before the pandemic, it wasn’t catastrophic.
Simply, in an interconnected world, it’s almost impossible to function without mobile devices. That’s probably the main reason why the volatility for VZ stock was modest relative to other equity units. Further, this thesis should prove viable if the economy suffers deflation. Usually, a limping economy forces consumers to sell everything they can — but they can’t afford to dump their phones.
At time of writing, VZ is down more than 4% on a year-to-date basis. This circumstance makes it one of the contrarian value stocks to buy. In part, the red ink assumes that the economy will boom, which may not be the case. Also, VZ features an attractive valuation trading at 11-times forward earnings.
Value Stocks to Buy: EZCorp (EZPW)
Easily the riskiest name in this list of value stocks to buy, I would personally wait to see if shares of EZCorp will drop to its 200-day moving average, which presently sits at $5.44. EZPW has been extremely volatile recently, turning off investors. Part of the reason could be the disappointing performance for the quarter ended March 31, 2021.
In it, EZCorp rang up $184.9 million in top-line sales, which was down 17% from the year-ago level. Also, between Q1 2020 through Q3 2020, the company printed consecutive declines in revenue. To be fair, Q4 and Q1 2021 sales moved the needle higher but not by much. EZCorp’s trailing-12-month revenue sits at $740.2 million, which is down noticeably from fiscal 2020 (ended September 30, 2020) revenue of nearly $823 million.
So, why bother with EZPW stock? The simple answer is the potential relevance of its business. As a leading provider of pawn loans in the U.S. and Latin America, it could become a financial lifeline for the unbanked population. Data from the FDIC shows that in 2019, the unbanked population represented 5.4% of American households. Unfortunately, this figure might increase because of the pandemic, which cynically would support EZCorp.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.