Contrarian investing has a long and profitable history. When a stock is fashionable it can go to the moon and beyond. Anyone looking at stocks worth close to a trillion dollars can guess that fashion can deliver multiples of value to companies in the glory bubble of superstardom. You cant fight fashion even when a company is worth $3000 for every human in the US Fashion can and does make things priceless. One day that tends to correct.
The otherside of the coin is that some stocks get so unpopular that the become worthless, or worth-little when compared to confusingly similar stocks.
One investors disrupting superstar is another loss making, no-hoper to be profitable dog. It gets even stranger when a loss making superstar is so highly valued when a profitable solid company that could easiuly make a roaring comeback is valued at a fraction of the others level of business.
Apple at its 11c low (pre-splits) suggests an unfashionable company can be on the edge of bankruptcy because it has no credibility. One tech messiah later and the company can be worth half the GDP of Africa.
Contrarian investing is about jumping n the rare comeback kid that can go from zero to hero.
So here are three candidates.
GoPro. Nasdaq:GPRO
This is a company you can buy for less than $1 billion. Its go a huge brand. It sold over a billion dollars of stuff in the last year. OK, so its got huge competition in the market it created and its drone didn’t, eh, fly. But then this game is about marketing and the first rule of marketing is brand and the talent to take the brand forwards. For a major tech brand $1bn is chump change. All you have to be sure of is the company isn’t going to go broke. US accounting is certainly hard to be sure of in these days of magical account and non-gapp-ness but on the surface the balance sheet look strong. So its sit back and wait time for anyone in at these low levels. I own this one, I just could not resist the slow, small but solid price recovery that is seeing the company drag itself out of the swamp.
Blackberry NYSE:BB
A fallen angel for sure, Blackberry trades more than 90% below its highs and can be picked up for $6 billion. Long gone the glory days when the Blackberry was called the ‘Crackberry’ and produced the first generation of screen fixated users, a zombie apocalypse that was to sweep the world with its life sapping diseases. On the face of it the management has got a handle of turning the company around and it has 30%+ of its market cap in cash to finish the job. But the market takes time to realise companies are back on course and will often continue to remember the bad old days. When the collective memory fades and there is a catalyst to look at the stock again, the stock price changes direction.
GE.
How the mighty fall. I recall watching the rise of GE under Jack Welsh and marvelling at the smoothness of the returns. These days you do not have to be to jaded to see in GE a microcosm of the rise and fall of the banks later in the post dotcom environment of financialisation and financial engineering that was to bring so much calamity. GE Capital was the magic trick behind GE’s rise, its AAA rating the magic tool that unlocked cash to sell stuff to all comers in a self funding merry-go-round where the wheels one day must come off. Well the wheels finally have come off and it must be said its amazing that the management of GE have been able to avoid a massive Lehman styple meltdown one that was likely days away in the credit crunch, when the colossus of US finance toppled one after another. So now GE is the dunce in the corner of the stock market, exiled after a century from the DOW and in a stock price decline that either goes to zero or doesn’t. when a stock is so unloved, the question is will the company go under. If you think GE wont, then its jst a matter of picking a bottom and jumping in. It wont be a miraculous turn around for GE, so there is plenty of time to pick your spot and its probably when you hear stories predicting the demise of the once great GE. If the company is broken up then there will likely be lots to be made from that process. If private equity get their fangs into the company, then there most likely wont be any meat left on the bones. This is the chart.
But the trend may still be in place.
So its worth watching a waiting till GE has reach a stable equilibrium out of the downward trend it still sits in. Once it is out of this phase it starts to look very interesting. GE at less than 1x sales and a historical p/e at these levels of around 5, a positive change would without doubt see a strong bounce.
None of these companies are a slam dunk, but as long as the market doesn’t have a Trump Slump because of the Trade Tirade, then these three companies look to be on the recovery road. That road can be very lucrative indeed if the management can land a turn around. So like any good contrarian vulture, get circling and keep a beady eye on the target below.
Everyone will tell you that you are mad but that it what contrarian investing is all about.
Side bar: A contrarian will look for unpopular companies that have hit a bottom and established a long term level. They then stake out a catalyst to turn the trend upwards and buy in. Its often a waiting game but when the tide turns unpopular companies can go up just as far as they have fallen and become as overvalued as hey were undervalued. Investment fashion is a strange creature.