In the middle of the summer with the stock market smoldering from the economic aftershocks of the BP (BP) oil spill, I decided to post a contrarian story emphasizing a very common refrain among value investors, "my pal Warren" being head of the class: buy on fear (sell on greed). This notion is continuing to work for what I called the toxic stock portfolio.

This is the third update to my ranting five months ago that six of the most reviled and most highly traded stocks featured by daily bad press as a group would outperform the overall market. It has, with the big winner rising from being one of the biggest losers.

Continue reading Chasing Value: Toxic Stock Update #3 -- BAC, BP, C, GE, GS, RIG

Chasing Value: Toxic Stock Update #3 -- BAC, BP, C, GE, GS, RIG originally appeared on BloggingStocks on Mon, 13 Dec 2010 12:00:00 EST. Please see our terms for use of feeds.

Having accepted a speaking engagement at a university school of business recently, I had to think about what introductory information I could impart to the students about investing that would be practical, immediately useful and establish a foundation for whatever direction their paths might lead. This was supposed to be the first in a series. However, since I pull no punches and can be a little edgy in my candor and presentation, who knew if I would be invited back?

My outline had five basic elements. The first thing I told them was to start now!

Continue reading Chasing Value: Class Is in Session -- Where to Start

Chasing Value: Class Is in Session -- Where to Start originally appeared on BloggingStocks on Mon, 13 Sep 2010 13:00:00 EST. Please see our terms for use of feeds.

Continue reading Chasing Value: American Eagle Will Soar Again

Chasing Value: American Eagle Will Soar Again originally appeared on BloggingStocks on Wed, 30 Jun 2010 16:40:00 EST. Please see our terms for use of feeds.

Continue reading Contrarian Investing and Large Drops, Profitable or Wreckless?

Contrarian Investing and Large Drops, Profitable or Wreckless? originally appeared on BloggingStocks on Wed, 26 May 2010 09:00:00 EST. Please see our terms for use of feeds.

"It's not secret that small caps perform best coming out of recessions; further, if we want to ride the small-cap rally for maximum gains, we should similarly rotate into small-cap value stocks," says Louis Basense.

The contributing editor to The Oxford Club explains, "Thankfully, it's an easy transition to make. I say that because the most attractive small-cap value investment is sitting right under our noses. No one on Earth is better at discovering small-cap value investments than David Dreman.

Continue reading Rotate into Value with Dreman Contrarian (DRSVX)

Rotate into Value with Dreman Contrarian (DRSVX) originally appeared on BloggingStocks on Wed, 10 Feb 2010 14:00:00 EST. Please see our terms for use of feeds.

This post is part of a special report, Top Picks for 2010, the 27th annual survey in which TheStockAdvisors.com asks the nation's leading advisors for their single favorite stock for the new year. See all 80 stocks listed here.

"AOL (AOL), formerly America Online, is one of the most storied -- and bloodied -- names in the Internet sector," says Bernie Schaeffer.

Referring to skepticism surrounding its early December spin-off from Time Warner, the editor of Schaeffer's Investment Research chooses AOL as his top pick for 2010, noting, "From a contrarian perspective, the current pessimism could have positive implications."

Continue reading Top Picks for 2010: AOL (AOL)

Top Picks for 2010: AOL (AOL) originally appeared on BloggingStocks on Wed, 06 Jan 2010 08:00:00 EST. Please see our terms for use of feeds.

Continue reading Chasing Value: 2010 -- #2 Grubb & Ellis

Chasing Value: 2010 -- #2 Grubb & Ellis originally appeared on BloggingStocks on Tue, 29 Dec 2009 17:40:00 EST. Please see our terms for use of feeds.

Auto parts company O'Reilly Automotive, Inc. (NASDAQ: ORLY- option chain) is one of the newest additions to the S&P 500 Index (SPX). Standard & Poor's announced late Thursday that ORLY will join the venerable index after the close of trading on March 26, where it will replace Noble Corp. (NYSE: NE).

The news caps off a pretty good week for ORLY; on Wednesday, Robert W. Baird initiated coverage of the stock with an "outperform" rating, and the equity tagged a new 52-week high of $36.17 in Thursday's session.

Continue reading O'Reilly Automotive revs higher, joins the S&P 500

O'Reilly Automotive revs higher, joins the S&P 500 originally appeared on BloggingStocks on Fri, 20 Mar 2009 11:30:00 EST. Please see our terms for use of feeds.

Late last year my colleague Joseph Lazzaro posted a story about NYU's 'Dr. Doom' Roubini: Stocks may fall another 20% during recession. That has to make one take pause when considering an investment in the stock market today, even after a major drop retesting November lows this week. On the other hand, Warren Buffett went out of his way to encourage the investing public and money managers alike that it was safe to go back into the market.

However, today it has been widely reported that Buffett sold off half of his holdings in Johnson & Johnson and trimmed his stake in Procter & Gamble.

Continue reading Buffett says buy, then sells, Roubini says wait -- what's an investor to do?

Buffett says buy, then sells, Roubini says wait -- what's an investor to do? originally appeared on BloggingStocks on Wed, 18 Feb 2009 12:55:00 EST. Please see our terms for use of feeds.

This post is part of a special annual report -- Top Stock Picks '09 -- in which TheStockAdvisors.com asked 75 leading newsletter advisors to select their favorite investment for the new year.

"My top pick for 2009, Hertz Global Holdings (NYSE: HTZ) is a very contrarian idea in one of the most beaten down sectors," states Glenn Cutler.

In his Stock Market Blog and Special Situations Report, the advisor says, "Hertz Global -- the world's largest car rental brand -- has over 8,000 locations in 144 countries.

"They are #1 at airports with corporate and licensee locations in North America, Europe, Latin America, Australia, and New Zealand and additional licensee operations in cities and airports in Africa, Asia, and the Middle East.

"Through Hertz Equipment Rental Corporation unit, the company operates one of the largest equipment rental businesses for a diverse line of customers ranging from major industrial companies to local contractors to consumers with over 350 branch locations in the U.S., Canada, China, France, and Spain.

Continue reading Top Stock Picks '09: Hertz (HTZ)

Top Stock Picks '09: Hertz (HTZ) originally appeared on BloggingStocks on Mon, 12 Jan 2009 10:00:00 EST. Please see our terms for use of feeds.

"Among contrarians, one advisors stands out among all others: David Dreman," notes John Reese, editor of the Validea newsletter.

His advisory service selects stocks based on the strategies of time-tested investors, he reviews Dreman's approach and offers one stock that matches the contrarian's investment profile -- specialty metals firm, Allegheny Technologies (NYSE: ATI).

"Dreman, perhaps more than any other guru I follow, is a student of investor psychology. And at the core of his research is the belief that investors tend to overvalue the 'best' stocks -- those 'hot' stocks everyone seems to be buying -- and undervalue the 'worst' stocks -- those that people are avoiding like the plague.

"In addition, he also believed that the market was driven largely by how investors reacted to 'surprises', frequent events that include earnings reports that exceed or fall short of expectations, government actions, or news about new products.

"And, he believed that analysts were more often than not wrong about their earnings forecasts, which leads to a lot of these surprises. By taking a contrarian approach -- i.e. targeting out-of-favor stocks and avoiding in-favor stocks -- Dreman found you could make a killing.

"To find out-of-favor potential turnarounds, he compared a stock's price to four fundamentals: earnings, cash flow, book value, and dividend yield. Because Dreman took advantage of the overreactions of others, he found that one of the best times to invest was during a crisis.

"Allegheny Technologies is a diversified specialty metals producer; its metals are selected for use in environments that demand metals having hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics.

Continue reading Allegheny Technologies (ATI): A 'Dreman style' contrarian buy

Allegheny Technologies (ATI): A 'Dreman style' contrarian buy originally appeared on BloggingStocks on Tue, 25 Nov 2008 14:25:00 EST. Please see our terms for use of feeds.

"At the Morningstar Investment Conference, I had a chance to hear directly from manager of several of our 'best buy' funds," says fund expert Mark Salzinger.

In his The No-Load Fund Investor, he discusses a pair of "contrarian" funds: Dodge & Cox Stock (DODGX) and T. Rowe Price Equity Income (PRFDX) recommended for long-term investors.

Salzinger explains, "The managements of these equity funds are sticking to its guns. In the case of Dodge & Cox Stock, this means a continuation of a contrarian focus on large out-of-favor stocks. often in equally out-of-favor sectors.

"In the case of T. Rowe Price Equity Income, this means a continuation of focus on high quality companies that appear historically cheap based on various levels of valuation, including their dividend yield relative to the market.

"Charles Pohl, the chief investment officer of Dodge & Cox and a member of the portfolio management team on DODGX, spoke strongly about what he considers to be the attractive opportunities in financials now that the sector is so out of favor.

"He says that the Dodge & Cox team is focusing on intense analysis of companies within subsets of the financial services industry, looking for stocks that have been beaten down with their peers despite superior operations, including safer historical underwriting standards.

Continue reading Best buys among contrarian funds

Best buys among contrarian funds originally appeared on BloggingStocks on Tue, 02 Sep 2008 11:00:00 EST. Please see our terms for use of feeds.

"We are moving headlong into oil," notes John Reese, who analyzes stocks based on the criteria used by "legendary" investors such as Buffett, Graham and Lynch.

In his Validea newsletter, he says, "My fundamental models indicate that the oil industry is where the best values in the market are." Here's a look at W&T Offshore (NYSE: WTI), which is based on the criteria used by contrarian David Dreman.

"The economy and stock market have gone through a legitimate crisis because of the credit woes, and it takes time for something like that to work itself out.

"But the important thing to remember is that we've been through financial crises before -- even bad-debt financial crises like this one -- and the market has always stabilized and then pushed higher.

"And history has shown that those who can stick with the stock market through down times like these will be rewarded.

"David Dreman -- one of the gurus I base my strategies on -- notes in his recent Forbes column, 'If you pack up now, chances are you'll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one, when market-timing investors are still on the sidelines.'

Continue reading W&T Offshore (WTI): Drilling with David Dreman

W&T Offshore (WTI): Drilling with David Dreman originally appeared on BloggingStocks on Wed, 27 Aug 2008 13:40:00 EST. Please see our terms for use of feeds.

New data from Dealogic shows that July was the fifth straight month of growth in U.S. mergers and acquisitions activity -- and the highest total since a year ago.

But it's not quite as good as it looks. The data is skewed upward by foreign bids for American companies like Genentech (NYSE: DNA) and Anheuser-Busch (NYSE: BUD) and, according to the Associated Press, "the rise in M&A ... more likely reflects foreign companies taking advantage of the weak dollar than it does a loosening of credit."

But from an investors' perspective, the cause of the increase probably doesn't really matter. Deep value investors like Mohnish Pabrai have been struggling to post strong returns of late, in part because the private equity funds that could be relied on to buy undervalued companies a couple years ago have brought their U.S.-based activity to a hault.

But now the foreign companies and sovereign wealth funds are in the game and, from an investors' perspective, that's just as good -- whoever will buy undervalued public companies at a premium will boost returns. The low price-book, low price/earnings, contrarian investment strategies that haven't worked lately could be ready to start working again, just as they have historically.

M&A activity back on the rise thanks to foreign companies originally appeared on BloggingStocks on Sat, 02 Aug 2008 11:40:00 EST. Please see our terms for use of feeds.

So the sky isn't falling.

Corporate earnings aren't that bad and are surprising analysts. Oil prices are falling just as quickly as they rose. If you are a contrarian investor, you must have a big grin on your face.

Common wisdom had it that markets were going to keep dropping, that the price of crude would hit $200 a barrel, and that bank after bank would go bankrupt. But what's happened? The opposite. Bank earnings aren't as bad a feared, crude has fallen to under $130 and suddenly investors are a bit more optimistic.

Even when we get bad news, like earnings from Apple (NASDAQ: AAPL), Texas Instruments (NYSE: TXN) and others, the market is able to hold up. Industries that just a week ago were being left for dead suddenly came roaring back to life. For investors who like to dabble in out of favor stocks, this market is a dream come true. Battered sectors such as financials, airlines, and even autos have surged over the last week. Who would have dreamed that airline stocks would actually stage a rally? What's interesting is that even with their recent move these sectors are all still trading significantly off their highs, meaning that potentially we have much more room to run.

Continue reading This is setting up to be a contrarian's dream market

This is setting up to be a contrarian's dream market originally appeared on BloggingStocks on Tue, 22 Jul 2008 16:43:00 EST. Please see our terms for use of feeds.

"Right now, we have a rare opportunity to get paid a monthly double-digit dividend and buy the skills of a legendary investment manager for only 85 cents on the dollar," says Dr. Steve Sjuggerud.

Here, in Daily Wealth, the advisor takes a look at David Dreman -- -- noted contrarian advisor -- and the opportunity currently offered in his closed-end fund, Dreman Value Income Edge Fund (NYSE: DHG).

"David Dreman made one of the greatest calls in stock market history. In 1980, he told investors to buy stocks. He didn't just tell a few clients or friends to buy stocks.

"He literally wrote the book on buying stocks in 1980 -- Contrarian Investment Strategies in which he argued, 'The stock market appears cheap by nearly every historical standard.'

"At the time, saying 'buy stocks' was bold stuff. Stocks hadn't made money in 17 years. But Dreman was absolutely right. After 17 years of losses, the stock market started the longest bull run in recorded history, which stretched from 1982 until 2000.

"Fast forward to 2008. Dreman is guarded, but optimistic again. In the May issue of Forbes he says: 'Frightening as the markets look today, there will come a time when the liquidity crisis ends and today's prices for bank stocks look, in retrospect, like bargains.'

Continue reading David Dreman: Value manager trades at a discount

David Dreman: Value manager trades at a discount originally appeared on BloggingStocks on Wed, 07 May 2008 13:30:00 EST. Please see our terms for use of feeds.

After years of ranting and raving that Google Inc. (NASDAQ: GOOG) was over priced and that investors and speculators alike were at risk I finally did an about face this week. The big GOOG made my Chasing Value column earlier in the week Chasing Value: Is it Google time? when it dropped below $500 per share. Contrarian that I am, when everyone else is losing heart I think perhaps reality takes hold. One tenet of contrarian investing is that nothing is ever priced right!

So this week I sensed an opportunity was at hand and could not resist blurting it out. In a down week and down day Google is up, so far so good. Microsofts (NASDAQ: MSFT) offer to buy Yahoo Inc. (NASDAQ: YHOO) in a hostile bid Microsoft attacks: going after Google not Yahoo did not faze Google. There are many that think MSFT is making a mistake by overpaying and will not see the return on investment that shareholders should expect.

Continue reading Chasing Value: Google looks to end the week higher

Chasing Value: Google looks to end the week higher originally appeared on BloggingStocks on Fri, 08 Feb 2008 15:02:00 EST. Please see our terms for use of feeds.

Barron's takes a look at what could be a bad omen for the future of the stock market (subscription required), at least in the short-term: "Even after a recent drop, margin debt remains within spitting distance of the all-time high it hit in July, and 43% higher than it was a year ago. At a current level of 2.4% of the market's adjusted market cap, margin debt is 3.4 times its 62-year average.

Why worry? For starters, high margin debt could result in widespread margin calls in the wake of rapid market decline, leading to a domino effect prolonging the market decline. For evidence of this phenomenon, please see The Great Crash of 1929.

But high margin levels are also a very bearish contrarian indicator. They show that many investors are maxed out -- even if they wanted to, they simply couldn't buy more stock -- they're already borrowing at near-record levels to do just that! New money is often a prerequisite for a bull market, and already-high margin levels could make it hard for new money to come in. The bullishness of the investment community is a very bearish indicator for contrarian analysts.

Is margin debt setting up the market for a fall? originally appeared on BloggingStocks on Sun, 21 Oct 2007 17:10:00 EST. Please see our terms for use of feeds.

Sometimes there is an article in a newspaper that's so great that it's worth doing a post on just so that more people will see it, and no additional commentary is really necessary. Whitney Tilson's tips for value investors in these weekend's Financial Times is such a piece.

For the uninitiated, Whitney Tilson is one of the great value investing minds of our time. He's also a heck of a good guy: He's one of the founders of Teach For America, and I'm an eager reader of anything that he has to say.

For more information about how to implement the investment strategies discussed in his latest column, I recommend the following books:

You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. If there's an award for the most informative book with a clunky, annoying title, I nominate this Joel Greenblatt masterpiece. It's focused on special situations such as spin-offs and bankruptcy investing, which are both featured in Tilson's list of tips.

Contrarian Investment Strategies: The Next Generation. Whether you like it or not, almost all value investing seems to have a contrarian angle: You're buying stocks that you think the market is pricing inaccurately. David Dreman makes a compelling case for contrarian investing, and shows how you might be able to beat the market.

Must-read tips from a value investing legend originally appeared on BloggingStocks on Sun, 20 May 2007 13:10:00 EST. Please see our terms for use of feeds.

Whenever I see a list of contrarian stock picks, I'm reminded of the Yogi Berra witticism about a popular restaurant: "Nobody goes there anymore because it's too crowded."

A list of stocks to buy because no one is interested in buying them seems paradoxical, but the methods that the Wall Street Journal used to compile its list of contrarian stocks [subscription required] are interesting: Stocks that have lagged the market for six months but have made sizable gains in the past week, have manageable debt levels, solid profits, negative analyst ratings, and PEG ratios below 1.5.

That's a pretty good screen for finding beaten down stocks, and I'm going to try to find a site that will allow me to input all of that into a stock screener. Anyone with any suggestions, please leave a comment.

And to learn more about contrarian investing, I recommend David Dreman's Contrarian Investment Strategies.

Following the herd on contrarian stocks? originally appeared on BloggingStocks on Sat, 31 Mar 2007 13:10:00 EST. Please see our terms for use of feeds.