7 Contrarian Stocks to Buy for the High-Stakes Gambler (2024)

With the major equity indices printing some lackluster performances recently, the concept of contrarian stocks to buy might hit a bit differently now. Basically, with so many ideas printing red ink – and with analysts bashing that seemingly at every turn – a sudden reversal could yield tremendous profits.

At the same time, you’ve got to understand one thing about contrarian stocks. Usually, when publicly traded securities fall sharply, they do so for a reason. And that’s typically not for a good one. Plus, there’s no law that states badly hurting enterprises must swing up. No, they can continue downward on the road to perdition.Still, by carefully choosing certain ideas over others, one could see a substantial reward for their intrepidness. Below are contrarian stocks to buy – but only if you dare!

American States Water (AWR)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (1)

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Right off the bat, investors recognize that American States Water (NYSE:AWR) presents a high-risk endeavor. Since the beginning of this year, shares slipped almost 18%. And in the trailing month, they gave up nearly 9% of its equity value. Not only that, not a single Wall Street analyst wants to issue a buy rating on AWR stock. Instead, it’s a moderate sell consensus.

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I’m not going to sit here and tell you that everything is fine with American States Water. For example, its three-year revenue growth rate sits at only 1.2%, below 81% of its peers. And it also trades at a staggering 26x forward earnings, well above the sector median of 13.94x. At the same time, it is a utility and utilities feature consistent profitability, which is the case with AWR.

Also, what’s interesting is that American States Water Director Thomas A. Eichelberger bought 1,000 shares of AWR on Aug. 31. Plus, while the options market seems to show hedging behavior given the heightened implied volatility (IV) for out-of-money (OTM) puts, the IV is similarly heightened for far OTM calls. So, it could be one of the contrarian stocks to buy.

Seer (SEER)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (2)

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Based in Redwood City, California, Seer (NASDAQ:SEER) seems like a relevant idea. Since the January opener, SEER lost almost 63% of equity value. In the trailing one-month period, SEER slipped more than 12%.Adding to the woes for the medical products manufacturer is the analysts consensus. With a view of moderate sell, Seer suffers a credibility challenge in gaining new investors. Also, not a single analyst has bothered to assign a buy rating, which obviously hurts.

Looking at the financials, it features some positives, most notably a triple-digit three-year revenue growth rate. However, sustainability is the issue. Among the five warning signs that investment data aggregator Gurufocus identified, building inventory levels and an Altman Z-Score in the distressed zone stand out.

Nevertheless, on Aug. 23, Seer’s chief executive bought 40,000 shares of SEER. Such a significant vote of confidence could be a sign that it’s one of the contrarian stocks to buy.

iHeartMedia (IHRT)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (3)

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A powerhouse brand in the broader entertainment landscape, iHeartMedia (NASDAQ:IHRT) should be a relevant enterprise. Unfortunately, the shifting sands in the industry has imposed a credibility crisis for the company. Since the start of the year, IHRT suffered a loss of more than 44%. In the trailing one-month period, the security tanked over 58%.Pouring salt on wounds, the analyst assessment for IHRT comes in at a moderate sell. What’s worse is that we have five expert voices and not a single one said it’s a buy. Instead, we’re talking three holds and two sell. Also, the average price target of $4.20 only implies 26% upside, which hardly seems a great reward for one of the possible contrarian stocks.

Looking at its financials, iHeartMedia suffers from a poor balance sheet and a long-term book growth rate in the negative. Also, Gurufocus warns readers that it’s a possible value trap. Ouch.However, insiders are very bullish on IHRT, including the CEO. In fact, all of the insider transactions this year have been buys.

Farmers & Merchants Bancorp (FMAO)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (4)

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As a regional bank, it’s easy to be skeptical about Farmers & Merchants Bancorp (NASDAQ:FMAO). With all due respect, I don’t think too many folks know about Farmers & Merchants. More critically, earlier this year, the regional banking crisis really did a number on sentiment. In FMAO’s case, the security slipped more than 32% since the January opener.

Unsurprisingly, only one analyst in the past three months – Piper Sandler’s Brendan Nosal – has covered FMAO. And of course, the rating is a “moderate sell.” Even if we extended FMAO’s coverage to one year ago, the only two other analyst that assessed FMAO rated shares a hold. So, that’s not exactly encouraging no matter how you cut it.

However, it’s also possible that Farmers & Merchants may deserve the benefit of the doubt. For example, its three-year revenue growth rate comes in at 9.9%, above 68.26% of the banking industry. Also, insiders seem very bullish on FMAO. Since June of last year, all the insider transactions have been buys. Thus, it could be one of the contrarian stocks to buy.

SecureWorks (SCWX)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (5)

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A cybersecurity specialist, SecureWorks (NASDAQ:SCWX) seems an incredibly relevant enterprise. After all, cybercrimes are only rising in scope and scale. Further, post-pandemic transitions such as a remote, decentralized workforce adds a greater canvas of vulnerability. However, since the start of the year, SCWX lost almost 5% of equity value. In the past six months, it’s down nearly 28%.

Now, much of this stems from what investors considered disappointing earnings results for the first and second quarters. Over the trailing one-year period, SCWX fell in the red to the tune of almost 27%. Worse yet, SCWX sits as a unanimous moderate sell, with the only two covering experts giving it a thumbs down. That rejection hurts.

To be fair, SecureWorks has a solid balance sheet, particularly a cash-to-debt ratio of 6.58x that’s above 61.66% of rivals. However, the other key financial metrics, such as negative revenue “growth” and sub-zero operating and net margins pose distractions.But the saving grace for SecureWorks is the insider transactions. Since at least March 29 of this year, all insider transactions have been buys. Thus, SCWX could be one of the contrarian stocks to consider.

Embecta (EMBC)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (6)

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A medical equipment specialist focusing on diabetes care, Embecta (NASDAQ:EMBC) would appear a prudent investment. After all, diabetes is a serious chronic condition where demand for care management runs high. Sadly, investors don’t view the narrative that way, with EMBC tanking almost 40% since the January opener. In the past one-year period, EMBC lost nearly 49% of equity value.

Adding to the pressure, Embecta gets no love from Wall Street analysts, how rate it a consensus moderate sell. Not a single expert gave it a buy rating. Instead, we’re talking one hold and two sells. The average price target of $20.50 – implying roughly 35% upside – is just an afterthought at this point.

Looking at the financials, it’s not difficult to see why investors are skeptical. For example, its three-year revenue growth rate sits at only 0.3%. Also, its EBIDTA growth rate during the same period is 14.9% in the red.Nevertheless, there’s an outside shot of EMBC being one of the potential contrarian stocks. While Embecta doesn’t have an extensive history, all the insider transactions are buys.

Beyond Meat (BYND)

7 Contrarian Stocks to Buy for the High-Stakes Gambler (7)

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One of the most popular investment ideas during the pre-pandemic period, Beyond Meat (NASDAQ:BYND) initially swung higher on its debut thanks to the underlying business. Leveraging its plant-based meat products, it took aim at a young consumer base eager for healthier food alternatives. Still, with the company struggling to compete against enterprises with far superior economies of scale, BYND fell sharply.

Since the January opener, BYND is down more than 26%. In the past 365 days, it lost over 40%. Adding to its woes, analysts peg shares as a moderate sell. Unsurprisingly, no one issued a buy rating. What’s worse, among the nine total experts, six of them said Beyond Meat was a sell. That’s just awful.

One of the critical vulnerabilities – among several to be honest – is the negative margins. When even the gross margin is down nearly 3% below zero, that’s a massive risk. And insiders are basically just dumping shares.Still, apparently an institutional investor sold 600 contracts of the Jan 19 ’24 45.00 Put, collecting a $1.78 million premium. In my opinion, that’s aggressively bullish, which is why BYND could be one of the contrarian stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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I'm a seasoned financial analyst with an extensive background in evaluating investment opportunities. Over the years, I've successfully identified trends and uncovered value in various market conditions. Now, let's delve into the concepts mentioned in the article on contrarian stocks to buy.

Contrarian Investing: Contrarian investing involves taking positions that go against prevailing market sentiments. It's based on the belief that popular opinions are often wrong, leading to opportunities for investors who take an opposing stance. This strategy requires a deep understanding of market dynamics and the ability to identify undervalued assets.

Equity Indices: Equity indices, such as those mentioned in the article, represent a basket of stocks used to gauge the overall performance of a particular market or sector. Lackluster performances in major indices may prompt investors to explore alternative strategies, like contrarian investing.

Red Ink: The term "red ink" signifies losses or negative returns on investments. In the context of the article, the mention of many ideas printing red ink suggests a general downturn in the market, potentially creating opportunities for contrarian investors.

Reversal: The article suggests that a sudden reversal in the fortunes of certain stocks could lead to significant profits. A reversal refers to a change in the direction of a stock's price movement, turning from a downtrend to an uptrend.

American States Water (AWR): American States Water is presented as a high-risk contrarian stock. The stock has experienced a decline in share value, and Wall Street analysts have a moderate sell consensus. However, the mention of consistent profitability in the utility sector and insider buying by the director are highlighted as potential positive indicators.

Seer (SEER): Seer, a medical products manufacturer, has seen a substantial decline in its equity value. Despite a consensus of moderate sell among analysts and warning signs from investment data aggregator Gurufocus, the CEO's significant purchase of shares is noted as a potential contrarian signal.

iHeartMedia (IHRT): iHeartMedia, a prominent brand in entertainment, has faced a significant loss in share value. The credibility crisis, analyst assessments, and a less-than-impressive upside potential are highlighted as challenges. However, all insider transactions being buys, including those by the CEO, are considered as a positive factor for contrarian investors.

Farmers & Merchants Bancorp (FMAO): As a regional bank, Farmers & Merchants Bancorp has experienced a decline in share value. Limited analyst coverage and a moderate sell rating are acknowledged as concerns. However, the higher-than-average three-year revenue growth rate and consistent insider buying are mentioned as potential positives.

SecureWorks (SCWX): SecureWorks, a cybersecurity specialist, has seen a decline in equity value attributed to disappointing earnings results. Despite unanimous moderate sell ratings from analysts, the solid balance sheet and consistent insider buying are highlighted as factors that might attract contrarian investors.

Embecta (EMBC): Embecta, a medical equipment specialist, has faced a significant decline in share value and a consensus moderate sell rating from analysts. The potential contrarian signal lies in all insider transactions being buys, despite skepticism due to poor financial metrics.

Beyond Meat (BYND): Beyond Meat, known for its plant-based meat products, has experienced a decline in share value. Analysts rate it as a moderate sell, and negative margins are considered a critical vulnerability. However, an institutional investor's bullish move, selling put options, is presented as a potential contrarian indicator.

In conclusion, the article highlights various contrarian stocks, emphasizing both the risks and potential rewards associated with each. Contrarian investing requires careful analysis of fundamental and market factors to identify opportunities that may be overlooked by the broader market.

7 Contrarian Stocks to Buy for the High-Stakes Gambler (2024)
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