Being Contrarian

Sometimes, an equity is so beloved that there’s no one left to buy it. I’m looking at you, late-2012 AAPL. I’m also looking at YOU, priceline.com, with your 97.8% institutional ownership.

This chart will keep updating itself so that I can come back in a few months and see how wrong I was.
This chart will keep updating itself so I can come back in a few months and see how wrong I was.

Deep thoughts from S&P Capital IQ Chief Equity Strategist Sam Stovall: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

In 2012, the best-performing sector was Financials. In prior years, with the IVA explained for debt lending, everyone hated real estate and bank stocks so much that they couldn’t possibly hate it any more.

In 2013, the best-performing industries were Semiconductor Memory and Solar. We’ve been bearish on solid-state anything since Solyndra died in 2011.

When all the experts and forecasts agree, something else is going to happen.

If you bought the 10 stocks in the S&P 500 with the most sell ratings at the beginning of the year, equally weighted, you would have been up 75% YTD. If you bought the 10 stocks in the S&P 500 with the most analyst buy ratings, you would have only been up 22%.

Wanna play this game again next year? Here are the least-recommended stocks in the S&P 500 right now:

    Comerica (CMA)
    Deere & Co (DE)
    Exelon (EXC)
    Progressive (PGR)
    Bemis Co (BMS)
    Consolidated Edison (ED)
    Harris Corp (HRS)
    Hospira (HSP)
    Paychex (PAYX)
    People’s United Financial (PBCT)

The worst-performing industries this past year have been Industrial Metals & Minerals, Latin American Banks, and Residential REITs. If you’re a contrarian, go nuts and buy gold and investment-grade bonds, because the crisis isn’t over AHHHHHH. Scale back on U.S., European, and Japanese stocks. Increase exposure to emerging markets, especially Brazil.

A contrarian is, by definition, fighting the market. You cannot do this all the time unless you enjoy being wildly wrong.

Disclosure: I am long ARLP and BTU.

See Also:
Let Fear Be Your Friend in the Market –Forbes

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