6 Contrarian Stock Picks With Tons of Upside

These companies are out of favor for one reason or another, but they could pay off for patient investors.

Several arrows all pointing in the same direction, with a single arrow breaking away from the pack
(Image credit: Getty Images)

When the stock market is hitting new highs and even the laggards are rising, what’s a contrarian investor to do?

Contrarian investing centers on buying segments of the market that are currently out of favor, and since late 2020, the investments that had been unloved – value-priced stocks, shares in small and midsize companies, and even foreign firms – have soared in price.

“It’s tough to be a contrarian” these days, says Janet Johnston, chief investment officer at TrimTabs Asset Management, “because everything is working.”

So today’s contrarians must be selective. A good choice might be a company trying to emerge from a scandal or crisis, or a firm in the middle of a change in strategy – or maybe a business that’s dealing with a temporary setback, such as a failed acquisition, says Thyra Zerhusen, chief executive and chief investment officer of Fairpointe Capital.

Successful contrarian investors don’t abandon the basic tenets that guide good stock picking. They stick with high-quality companies – firms with strong balance sheets, solid business strategies and niches in their respective industries, and talented executives at the helm. Look for a catalyst for change, such as a new chief executive, a bold restructuring program or a new product about to launch. Avoid firms in declining industries, such as broadcast television, print media and coal, which face long-term, uphill challenges.

And prepare to be patient. Many contrarian investment theories take time to play out.

“We consider ourselves patient investors, but it’s easy to get stuck in value traps,” warns James England, manager of Meridian Contrarian fund. (Value trap is a term that describes a stock stuck in perpetual decline.) “Our best way to avoid that is to focus on earnings growth. We don’t invest unless we strongly believe that earnings can turn positive in the next year or two.”

We’ve found six contrarian stock picks for consideration. Check them out!

Returns and data are as of Jan. 8.

Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.