Harry Domash's Winning Investing



Last Contrarian Strategy

I’ve recently been describing contrarian stock picking strategies that involve buying stocks that stock analysts are advising selling. Why?

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 the details.

Set Up 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.

Make 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 potential underperformers.

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.

Published 11/7/2022

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