For those with the stomach to get into contrarian plays, this selection may be of interest to you. Now is a great time to be a contrarian because the herd is stampeding away from risk and there may be opportunities to consider. According to the Motley Fool's Jim Royal, "The time to buy is when investors are selling en masse. While fearful investors wait for the situation to become "safe," opportunistic investors are scooping up great deals on solid companies -- just like what happened immediately after the financial crisis, before the S&P went on to rally 84% since March 2009"
With that in mind, Jim selected five stocks with low or moderate P/Es that can appeal to the contrarian streak of opportunistic investors. Most even sport solid dividends, so you can get paid for your foresight while you wait for other investors to spot these great deals.
|Bridgepoint Education (NYSE: BPI)||8.2||0%||The for-profit education sector is under regulatory scrutiny.|
|National Grid (NYSE: NGG)||9.8||5.9%||A high-yield utility with low growth.|
|Philip Morris International (NYSE: PM)||14.8||4.5%||Company derives 40% of revenue from the EU, which is in dire straits.|
|Ultra Petroleum (NYSE: UPL)||13.2||0%||Natural gas at multiyear lows, so no one loves gas players.|
|Brookfield Infrastructure (NYSE: BIP)||6.6||5.0%||Who likes infrastructure stocks?|
Source: S&P's Capital IQ.
These are five cheap contrarian stocks that may be poised for solid long-term gains, and let's see how they do against our reference ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 5 Winning Stocks for the Contrarian Investor -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||5%||52%||11%||90%||9%||67%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||1%||-15%||12%||59%||3%||12%|
|5 Winning Stocks for the Contrarian Investor||18%||84%|
This contrarian stock selection has performed well as far as it goes. We don't have enough history and that needs to be kept in mind. It is also important to bear in mind that three of the stocks are long term proven players and have merit in their own right.
As I look at the charts I see that they have performed pretty well. I am not sure whether that is because they are contrarian or whether they have market leaders in key segments that are likely to do well in any case. If you removed BPI, you would have the basis of a long term blue chip portfolio. In any case, this is a portfolio that merits consideration.