Wayne Duggan
Stocks that are due to bounce back.
Sometimes, the best way to beat the market is to do the opposite of what everybody else is doing. Market sentiment is one of the best contrarian indicators. Historically, investors have been most bullish at or near market peaks and most bearish at or near troughs. In the 18th century, British nobleman Baron Rothschild is credited with the contrarian investor mantra that "the time to buy is when there's blood in the streets." Here's a look at eight contrarian stocks to buy that are down at least 35% in the past year, according to Bank of America.
CBS Corp. (ticker: CBS)
CBS shares have struggled in 2019, but the company finally announced its long-rumored merger with Viacom (VIA, VIAB) in August. Analyst Jessica Reif Ehrlich says aggressive spending on content has weighed on CBS's earnings, but the company's revenue growth outlook is solid. The Viacom merger helps boost CBS's strategic positioning and creates synergy opportunities as soon as 2020. CBS shares are trading at a historically low valuation, and the company could help shore up its post-deal balance sheet via non-core asset sales. Bank of America has a "buy" rating and $63 price target for CBS stock.
Concho Resources (CXO)
The energy sector has been battered for years now, so there are plenty of potential opportunities for contrarian investors. Concho is an independent oil and gas producer that owns nearly 1 million acres of assets in the Permian Basin. Despite the stock's nearly 50% decline in the past year, analyst Doug Leggate says Concho's third-quarter earnings numbers suggest it has turned a corner. Management guided for 2020 free cash flow of between $375 million and $750 million (depending on oil prices). Bank of America has a "buy" rating and $136 price target for CXO stock.
DXC Technology Co. (DXC)
DXC is the world's second-largest pure-play information technology services company. Analyst Jason Kupferberg says DXC's execution has slipped in the past couple of quarters, and the resignation of CEO Mike Lawrie in September was unexpected. DXC also cut its fiscal 2020 guidance in August, but Kupferberg says the stock has been unfairly punished given it is down 53% in the past year. Today, its valuation is near all-time lows. Kupferberg says consistent revenue numbers and improving margins could trigger earnings multiple expansion. Bank of America has a "buy" rating and $56 price target for DXC stock.
Mosaic Co. (MOS)
Mosaic is a fertilizer company that is among the world's largest producers of phosphate and potash. A difficult pricing environment has driven Mosaic's stock down 43% in the past year, but analyst Steve Byrne says Mosaic is an excellent potential contrarian play. The fourth quarter will likely be another difficult one for Mosaic given a U.S. inventory glut and a late harvest. But Byrne says prices should rebound in 2020, and the stock's depressed valuation limits additional near-term downside. Bank of America has a "buy" rating and $26 price target for MOS stock.
Mylan (MYL)
Mylan is one of the world's largest specialty generics drug makers. Over the summer, Mylan announced that it will be merging with Upjohn, the division of Pfizer that produces Viagra and Lipitor. Analyst Jason Gerberry says Mylan's international business has helped shield the company from a weak U.S. generic pricing market and potential opioid litigation risk. He says Mylan's improved new product launch outlook combined with a more stable pricing background in 2020 could help Mylan close its valuation gap with peers. Bank of America has a "buy" rating and $28 price target for MYL stock.
Occidental Petroleum Corp. (OXY)
Occidental is a global oil and gas company that outbid Chevron Corp. (CVX) to complete a controversial $55 billion buyout of Anadarko Petroleum in August. Investors haven't been thrilled with the massive deal, sending Occidental shares down 47% in the past year. However, Leggate says the Anadarko acquisition will be accretive to Occidental's cash flow and will help the company support its sector-leading 8.1% dividend yield. Asset sales and deal synergies appear to be running ahead of schedule. Bank of America has a "buy" rating and $80 price target for OXY stock.
Tapestry (TPR)
Tapestry is a specialty retailer focused on handbags, including the Coach, Kate Spade and Stuart Weitzman brands. Tapestry shares are down 36% in the past year as retail sales continue to shift online, but analyst Lorraine Hutchinson says fiscal 2020 guidance of single-digit sales growth and modest margin declines demonstrates how well Tapestry is navigating the difficult environment. Coach same-store sales have been steady and slightly positive, while Hutchinson says Kate Spade same-store sales should improve thanks to growth in China and Japan. Bank of America has a "buy" rating and $32 price target for TPR stock.
Cimarex Energy Co. (XEC)
Cimarex is an oil and gas producer primarily focused in the Permian Basin. Shares are down 50% in the past year, but Leggate says Cimarex is positioned to turn a corner in 2020. Leggate says Cimarex should generate at least $1.55 billion of operating cash flow next year as long as WTI oil prices stay above $50 per barrel. Cimarex stock trades at a deep discount to peers, but that gap should close as free cash flow improves. Bank of America has a "buy" rating and $75 price target for XEC stock.
Top contrarian stocks to buy:
-- CBS Corp. (CBS)
-- Concho Resources (CXO)
-- DXC Technology Co. (DXC)
-- Mosaic Co. (MOS)
-- Mylan (MYL)
-- Occidental Petroleum Corp. (OXY)
-- Tapestry (TPR)
-- Cimarex Energy Co. (XEC)
More From US News & World Report
I'm a financial expert with a deep understanding of stock markets and investment strategies. Over the years, I've closely followed market trends, analyzed various stocks, and gained valuable insights into contrarian investing.
Now, let's delve into the concepts mentioned in the article by Wayne Duggan on November 14, 2019, regarding stocks that are expected to bounce back:
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Contrarian Investing:
- Contrarian investing involves going against prevailing market sentiments. It's based on the idea that investors are often overly optimistic at market peaks and excessively pessimistic at market troughs.
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Market Sentiment as a Contrarian Indicator:
- The article highlights that market sentiment is one of the best contrarian indicators. Investors tend to be most bullish at market peaks and most bearish at market troughs.
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Baron Rothschild's Quote:
- The article references Baron Rothschild's contrarian investor mantra: "the time to buy is when there's blood in the streets." This implies that buying during times of market distress can lead to profitable opportunities.
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Selection Criteria for Contrarian Stocks:
- The selected stocks in the article have all experienced declines of at least 35% in the past year, according to Bank of America.
Now, let's briefly overview the mentioned contrarian stocks:
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CBS Corp. (CBS):
- Struggled in 2019 but announced a merger with Viacom, improving strategic positioning.
- Trading at historically low valuation.
- Bank of America has a "buy" rating and $63 price target.
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Concho Resources (CXO):
- Independent oil and gas producer.
- Experienced a nearly 50% decline, but Q3 earnings suggest a turnaround.
- Bank of America has a "buy" rating and $136 price target.
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DXC Technology Co. (DXC):
- World's second-largest pure-play information technology services company.
- Stock down 53% in the past year, but valuation near all-time lows.
- Bank of America has a "buy" rating and $56 price target.
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Mosaic Co. (MOS):
- Fertilizer company facing a difficult pricing environment.
- Stock down 43%, but potential rebound in 2020.
- Bank of America has a "buy" rating and $26 price target.
-
Mylan (MYL):
- Specialty generics drug maker merging with Upjohn.
- Improved international business outlook.
- Bank of America has a "buy" rating and $28 price target.
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Occidental Petroleum Corp. (OXY):
- Global oil and gas company with a controversial acquisition of Anadarko Petroleum.
- Anadarko acquisition expected to be accretive.
- Bank of America has a "buy" rating and $80 price target.
-
Tapestry (TPR):
- Specialty retailer focused on handbags.
- Navigating online retail shift.
- Bank of America has a "buy" rating and $32 price target.
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Cimarex Energy Co. (XEC):
- Oil and gas producer in the Permian Basin.
- Stock down 50%, but expected to turn a corner in 2020.
- Bank of America has a "buy" rating and $75 price target.
These contrarian stock picks are based on the belief that their current low valuations present opportunities for potential rebounds. Always conduct thorough research and consider your own risk tolerance before making investment decisions.
