More often than not, investors should be careful about going against the wisdom of analyst assessments. These folks didn’t get to where they are by happenstance. No, they had to establish a strong track record of success. That they are intelligent goes with the territory. However, sometimes even the experts get things wrong and thus provide the framework for contrarian stocks.
To be clear, you’re dealing with a high-risk, high-reward endeavor. While it may be sexy to bet against the crowd, groupthink exists for a reason. And when that crowd is a crowd of analysts, you’ve got to be sure in the contrarian thesis. Otherwise, blindly betting on ideas that the experts believe could fail could be a surefire way of absorbing severe penalties.
However, it’s also not prudent to depend on analysts for its own sake. Rather, the financials and the fundamentals should be the guiding force. With that said, below are intriguing ideas for contrarian stocks to buy.
Over the years, premium electric vehicle manufacturer Lucid Group (NASDAQ:LCID) has been a frustrating play. While it enjoyed a strong public market debut, LCID stock has been utterly disappointing when stacked against the highs seen in 2021. It’s no surprise, then, that analysts have rated shares a consensus moderate sell. Heading into the current week, the assessment broke down as five holds and two sells.
Ordinarily, such a pitiful perspective would make LCID an equity to dump. However, it legitimately could be one of the contrarian stocks to gamble on. First, there’s the strong recent performance. In the business week ending July 12, LCID stock gained nearly 37%. Just as importantly, the prior consensus view on Lucid’s financials calls for significant growth in fiscal years 2024 and 2025.
Fundamentally, Lucid may tangentially benefit from the Volkswagen (OTCMKTS:VWAGY) deal with Rivian (NASDAQ:RIVN). Basically, the EV competition is moving toward the middle-income crowd, which may lessen competition in the upper-income arena. That might give Lucid a chance to dominate this niche but lucrative segment.
Therefore, it may not be time to give up on LCID stock just yet.
Educational technology (edtech) firm Chegg (NYSE:CHGG) – which is probably best known for its online tutoring platform – makes an intriguing case for contrarian stocks. Sure, the bearish case against the company is rather obvious. Thanks to the rise of artificial intelligence and specifically chatbots that utilize large-language models, Chegg seems irrelevant. After all, you can just ask ChatGPT whatever you want for free.
However, I’m reminded of the adage, that you get what you pay for. And since you’re paying nothing, what really is the value of chatbot-generated answers? Depending on what type of answers you’re looking for, the value could be negative. We all know that AI chatbots can generate incorrect answers. However, what’s startling is that ChatGPT has been struggling with mathematical functions.
Since math is a quantitative discipline, the high failure rate makes ChatGPT very suspect as a tutoring device. In that sense, Chegg is a lot more relevant than people think. Yes, analysts rate shares a moderate sell. However, it might rank among the contrarian stocks.
It’s also worth pointing out that while analysts are projecting erosion in sales for fiscal 2024 and 2025, the realization of AI’s limitations could warrant a rethink. At the least, it’s something to keep on your watchlist.
Based in Dallas, Texas, Kronos (NYSE:KRO) falls under the specialty chemicals industry. Per its public profile, Kronos produces and markets titanium dioxide pigments, which are used in various applications. These include paints, coatings, plastics, paper, fibers and ceramics. The material can also be incorporated into ink, food products and cosmetics. It offers a relevant profile, which means that investors should appreciate it.
Indeed, KRO stock has enjoyed a strong performance this year. However, analysts heading into this week pegged Kronos a moderate sell. Further, the average price target sits at $12, which implies sizable downside. Some of the pessimism may have stemmed from earlier financial performances. In the second and third quarters of last year, Kronos badly missed against established bottom-line targets.
However, the company started to get back on the right side of things in Q4 2023 and Q1. Also, in the most recent quarter, the annual sales growth rate stands at 12.3%. Interestingly, the consensus view for sales comes in at $2.1 billion, 26% above last year’s print of $1.67 billion.
With the wide-ranging relevance of the business, KRO appears to be one of the contrarian stocks to consider.
Based in Phoenix, Arizona, Southern Copper (NYSE:SCCO) falls under the basic materials sector. Along with mining, exploring, smelting and refining the namesake commodity, Southern Copper also specializes in zinc, molybdenum, silver, gold and lead. Thanks to the inflationary cycle that we find ourselves in relative to pre-pandemic norms, commodities could enjoy an organic uptick.
Not only that, whichever presidential candidate wins in 2024, either administration will be eager to build America according to a specific vision. Whatever that vision is, the underlying theme is building. That should help boost SCCO stock. However, analysts view Southern Copper as a consensus moderate sell. Also, their average price target sits at $98.44, implying a significant downgrade.
However, it’s difficult to believe that such a circumstance will materialize. Yes, SCCO is overpriced compared to other basic material companies at 9.28X trailing-year sales. Still, the experts believe that Southern can post revenue of $11.43 billion by year’s end. That’s a 15.5% lift from last year.
Also, Q1 2024’s revenue came in at $2.6 billion, beating the consensus view of $2.49 billion. It’s one of the contrarian stocks to consider.
Headquartered in Richmond, California, SunPower (NASDAQ:SPWR) falls under the solar technology space, as you might imagine. Per its corporate profile, SunPower offers solar, storage and home energy solutions, primarily in the U.S. and Canada. Its mainline products include Equinox and SunVault, which are pre-engineered modular solutions for residential applications.
To be fair, the residential component of the solar energy ecosystem took a major hit in recent years. With monetary policy pivoting to a hawkish stance, high borrowing costs crimped demand. Not helping matters was that inflation was also blisteringly high. Therefore, consumers suffered from the worst of both worlds. Still, as economic circumstances normalize, SPWR may be worth a look.
It’s a massive risk. According to Bloomberg, SPWR stock suffered a huge loss earlier this month due to financial misconduct allegations. However, the bulls have attempted to engineer a recovery. Right now, Wall Street experts see a 13.2% decline in 2024 sales to $1.47 billion.
However, if management gets its act together, SunPower could see sales of $1.66 billion in fiscal 2025. It’s one of the most speculative ideas among contrarian stocks.
One of the boldest ideas among contrarian stocks, Hertz Global (NASDAQ:HTZ) stretches credulity, even among extreme speculators. As you know, Hertz was one of the ignominious victims of the Covid-19 crisis. With global travel practically shut down for months, the company – which specializes in auto rentals – had nowhere to go but down. It was unfortunate.
However, even with the pandemic in the rearview mirror, HTZ stock hasn’t performed well at all. Just pull up the lifetime chart – it’s ugly. Now, where it gets interesting (possibly) is that there could be reason to believe the volatility is behind us. In the business week ending July 12, HTZ gained almost 12% of equity value. That’s a far cry from what we’ve seen in prior months.
Also, the fundamentals may be supportive. While the acute phenomenon of revenge travel may not be present anymore, that has given way to travel prioritization: people still value their vacation time and are shifting their discretionary budgets accordingly. That could help Hertz.
Also, the company might see modest revenue growth in fiscal 2024 and 2025. Relatively speaking, HTZ is trading at a deep discount to sales of 0.14X. For the intrepid, Hertz may be one of the contrarian stocks to consider.
Falling under the restaurant industry, Cracker Barrel (NASDAQ:CBRL) presents an interesting and controversial narrative. Historically, the company aimed to deliver a taste of Southern culture through its unique ambiance and culinary delights. A couple of years ago, I visited a Cracker Barrel for the first time and thought it was delightful experience.
However, in the past, delightful would not be the adjective used to describe some unfortunate customer experiences. To be sure, management has taken the criticisms and attempted to build a more inclusive brand. Now, the company generates controversy for losing touch with its conservative roots.
Still, Cracker Barrel is one of the few major restaurant brands that focus heavily on Southern food. You’re just not going to find that at your local Applebee’s, for instance. So, I believe the company’s efforts to please both sides of the ideological divide could pay off.
Also, the latest news suggests that eateries are improving in sales. If that’s the case, analysts may be understating Cracker Barrel’s upside potential and overstating the power of angry voices on the right. It could very well be one of the contrarian stocks to buy.