Harry Domash's Winning Investing



Testing My New Contrarian Strategy

I’ve found that analyst’s “buy” rated stocks don’t necessarily outperform stocks they’re advising selling.

With that in mind, today I’m going to describe a contrarian stock picking strategy I’m testing that involves buying stocks that analysts are telling you to sell.

So far, I’ve only done only limited testing of it, so track the results, but don’t put real money on the stocks listed. Here are the details.

Use Finviz Screener

As usual, I’ll use the free and user friendly Finviz stock screening program to build the combined portfolio.

Start from the Finviz homepage (finviz.com) by selecting Screener. Finviz uses “filters” to search for stocks meeting your selection criteria. Select “All” on the Filters bar to see all available screening choices. We’ll start by defining our candidate universe.

Define Candidate Universe

Start by using the Country filter and specifying “USA.” to limit your list to U.S.-based stocks.

Market capitalization (Market Cap) is the value of a firm’s outstanding shares. Market caps range from a few million up to one or two trillion dollars for the likes of Apple or Microsoft. In my experience, the smallest stocks are riskier bets than their larger cousins. So use the Market Capitalization filter and specify “+ Small” to limit your list to stocks with $300 million or larger market-caps.

Along those same lines, use the Price filter and specify “Over $2” rule out the cheapest players by that measure.

Next, we’ll limit our list to companies with successful long-term track records.

Steady Growers

Specify “Positive” for both EPS Growth Past Five Years and Sales Growth Past Five Years to limit your list to firms with strong historical growth.  

Next, we’ll look for stocks that analysts recommend selling.

Analysts Say Sell

Analysts use a variety of terms to describe their buy/sell opinions, but Finviz boils them down to “strong buy,” “buy,” “hold,” “sell” and “strong sell”. Except for “hold,” the meanings are self-explanatory. However, because company executives often get annoyed by “sell” ratings, many analysts rate stocks at “hold” when they really mean “sell.” Thus, consider “hold,” “sell” and “strong sell” as all meaning sell. Specify “hold or worse” using the Analyst Recommendation filter.

Most analysts set target prices along with their buy/sell ratings. Using the Target Price filter, specify “10% Below Price” to limit your list to stocks that analyst really expect to head down.

Finally, pinpoint the stocks that the smart money owns.

Checking Smart Money

In stock market parlance, institutions are mutual funds, pension fund, insurance companies and other large players. Institutions typically do their own research rather than following stock analysts’ advice.

 Finviz’s Institutional ownership parameter gauges the percentage of each firm’s outstanding shares held by institutional players. Specify “Over 90%” for Institutional Ownership to limit your list to stocks that these ‘in the know’ players like.  

Four Contrarian Plays

I ended up with only four surviving stocks when I ran this screen on Wednesday.

Warrior Met Coal (HCC),

Robert Half International (RHI),

Range Resources (RRC), and

Watts Water Technologies (WTS)

As said earlier, I’ve done only limited testing of this concept. So track the results, but don’t put real money there yet.

Published 10/11/21

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