December is the Month for Contrarian's

Contrarian investors get excited in December. That’s when bargain stocks become even cheaper because of tax-loss selling. In addition, the S&P/TSX Composite Index undergoes a quarterly rebalancing and the stocks deleted from the index come under downward pressure because of selling by index funds.

Prime prospecting territory for contrarians therefore would be the nine companies whose stocks are getting kicked out of the S&P/TSX Composite Index on Dec. 24. Throw in ongoing tax-loss selling (index deletions tend to be losing stocks too) and these unwanted nine as a group are probably selling at prices that don’t reflect their fundamentals (although a few of them could be headed for delisting or insolvency).

It’s interesting to see, by the way, that most of the nine sold off dramatically in the first half of November. Was that when the index funds sold? Could be … there was plenty of conjecture by brokerage analysts over the likely deletions starting back in November and index fund managers no doubt had a good idea then which stocks were likely to be dumped.

Of the nine, at least one seems worth looking at: ATS Automation It is high risk (as highlighted by the requirement to refinance $139 million by Dec. 31 or otherwise face CCAA), but smart money has made big bets: the Contra The Heard newsletter is one bull and activist hedge fund, Goodwood Funds is another.

There is a new CEO in place with experience in the Spar Aerospace turnaround and sale. The ATS strategy will likely consist of finding a way to sell off the solar-energy and auto-parts businesses to focus exclusively on automation systems.

Angiotech Pharmaceuticals Inc. (ANP) ATS Automation Tooling Systems Inc. (ATA) Cinram International (CRW.UN) Cyries Energy Inc. (CYS) Gabriel Resources (GBU) MEGA Brands Inc. (MB) QLT Inc. (QLT) Quebecor World Inc. (IQW) True Energy Trust (TUI.UN).