Last Contrarian Strategy
I’ve recently been describing contrarian stock picking
strategies that involve buying stocks that stock analysts are advising
Because when unexpected good news happens, out of favor
(sell rated) stocks typically move up more than “buy” rated stocks would
on the same news.
In my last column, I outlined a contrarian strategy that
involved buying stocks that analysts were advising selling even though
those same analysts were forecasting strong future earnings (EPS) growth
numbers for the same stocks. Why did that get my attention?
Because I’ve found that share prices track EPS closer
than any other single factor. Duh?
Today, I will complete my contrarian theme (at least for
a while) describing another variation that involves buying stocks that
analysts are advising selling while other market players, arguably in
the best position to know, are loading up on those same stocks. Here are
Contrarian Stock Screen
You could run the screen I’m going to describe on a
variety of different websites. But as usual, I’ll demonstrate the
process using the free and user-friendly Finviz stock screening program.
So, on the Finviz homepage (finviz.com), select
“Screener” on the toolbar near the top. Then select “All” on the Filters
bar to see the available screening filters.
Where The Action Is
Since the U.S. is currently enjoying the world’s
strongest economy, start by using the Country filter to specify “USA.”
Analysts Say Sell
Next, we’ll limit our list to stocks “sell” rated by most
analysts. But doing that requires a little explanation.
Analysts use all sorts of terms to rate stocks, but
Finviz boils them down to “strong buy,” “buy,” “hold,” “sell” and
“strong sell”. Except for “hold,” the meanings are self-explanatory.
To avoid antagonizing company executives, many analysts
rate stocks at “hold” when they really mean “sell.” Thus, for our
purposes, “hold,” “sell,” and “strong sell” all translate to “sell.”
Consequently, using the Analyst Recommendation filter,
specify “hold or worse” to limit your list to stocks analysts are
telling you to sell.
Follow Smart Money
Institutional investors are large organizations such as
mutual funds, hedge funds, endowments, etc. They typically employ
professional money managers to guide their investments. I have found
that stocks heavily owned by these savvy investors typically outperform
stocks with low institutional ownership.
So, using specify “Over 90%” using
the Institutional Ownership filter to limit your list to stocks that
institutional buyers like the most.
Along those same lines, specify
“Positive” for Institutional Transactions insure that these big players
are still adding to positions.
The Trend Your Friend
Next, since stocks typically move in trends, using the
Performance filter, specify “Month +10%” to limit your list to currently
outperforming the market.
Finally, I’ve found that since “cheap” stocks typically
under\perform then market, specify “Over $15” to rule out these
Five Contrarian Plays
My screen turned up five stocks.
They were CVR Energy (CVI), Moelis & Co. (MC), ODP Corporation (ODP),
PBF Energy (PBF), and Xylem (XYL). All except ODP Corp. pay dividends.
These are my ideas, but do your own due diligence. The
more you know about your stocks, the better your results.