The stock market isn’t perfectly efficient, providing contrarian investors with the necessary latitude to generate excess returns. Although contrarian investing involves risks, it can be equally rewarding, especially when a disparity has emerged between sectoral stock returns.
This article is about contrarian investment opportunities. I identified three stocks that could shrug off the negative sentiment attached to them. My search dialed in on systematic factors, company-specific events and valuation multiples. Moreover, I ensured that each asset had relevant technical data points.
It’s crucial to understand that contrarianism involves going against the prevailing sentiment, meaning my picks are unsuitable for all investors. However, if you’re looking for best-in-class contrarian investment opportunities, here are three stocks worth considering.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) is an innovative loan intermediary that utilizes numerous technologically driven methods to optimize the consumer lending environment. The company’s stock has a short interest of 33.7%, showing numerous investors are pessimistic about UPST’s prospects. However, I beg to differ; here’s why.
The firm’s business model essentially relies on loan volumes. As such, elevated interest rates can be problematic, given that consumers prefer borrowing at lower rates. However, Upstart released its first-quarter results in May, revealing that it has been unabated by higher interest rates. Upstart’s quarterly transaction volume increased by 13% year-over-year, reaching $1.1 billion. Moreover, Upstart achieved a conversion rate of 14%, an 8% year-over-year increase.
The abovementioned variables led Upstart to achieve quarterly revenue of $118 million, which it anticipates will increase to $125 million in its second quarter. Additionally, Upstart’s management believes the firm will have positive earnings before interest tax depreciation and amortization (EBITDA) by the end of the year.
I am confident that Upstart will experience exponential growth when interest rates pivot. Moreover, its stock has a relative strength index (RSI) ratio of around 41.28, suggesting it has contrarian attributes.
UPST stock is a risky play. Nevertheless, its upside potential is mouthwatering.
C3.ai (AI)
C3.ai (NYSE:AI) burst onto the scene last year amid an exponential commercialized artificial intelligence (AI) uptake. However, AI stock has dropped by more than 30% year-over-year, suggesting a sense of neglect from its initial investor base.
I think it’s a good time to invest in C3.ai’s stock. Sure, the commercialized AI arena is experiencing a surge in competition. However, the enterprise AI market is touted to grow by 43.9% annually until 2028, providing C3.ai with secular growth potential. Additionally, the barriers to entry into the upper echelon of the AI market remain high due to the disparity in labor skill sets.
Furthermore, C3.ai’s fundamentals have shown good short-term support. For example, the company released its fourth-quarter earnings in May, beating analysts’ revenue estimates by $2.2 million. Moreover, C3.ai’s third-quarter results topped analysts’ earnings-per-share estimates by 19 cents, illustrating its increased efficiency.
As mentioned, enterprise AI is here to stay, and C3.ai has shown that it can be a key player in the industry, providing its stock with a fundamental basis to reach new heights. Furthermore, AI stock’s price-to-sales ratio of 11.23x is moderate, given its illustrious growth, suggesting it is within the buying range.
With all factors considered, I am bullish about AI stock’s prospects.
Sibanye-Stillwater (SBSW)
Sibanye-Stillwater (NYSE:SBSW) is a South African precious metals miner primarily operating in the platinum group metals (PGMs) industry.
The company has suffered a series of external misfortunes in the past two years, dragging its stock down into the abyss. Among Sibanye’s misfortunes were mine floods relating to its U.S. operations. Moreover, Sibanye struggled with labor strikes in South Africa and a series of power cuts.
Fortunately, Sibanye’s structural threats have abated. The firm’s U.S. mines are operational again while its South African risks have calmed, given a softer labor market and reduced electricity cuts. Furthermore, Sibanye could benefit from a more favorable commodity pricing environment. For instance, the platinum futures forward curve is sloping upward, meaning a bullish theme.
Higher commodity prices could coalesce with Sibanye’s structural shifts and lead to stellar fundamental performance, providing a basis for SBSW stock to outperform the market, especially as SBSW stock is grossly undervalued, with a price-to-sales ratio of merely 0.51x. Moreover, SBSW stock possesses a modest RSI ratio of around 40.54, implying that a technical inflection point might emerge.
Although there are inherent risks, I won’t be surprised if SBSW stock doubles within the next year.
On the date of publication, Steve Booyens did not hold (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.
