The only real approach I know to ensure you buy shares at cheap prices with good upside potential.
So, welcome to July. I see the weather remains dull…
…and the market remains soggy, too.
Indeed, many big-name shares have yet to rebound from June’s ‘correction’ and still trade well below their earlier highs.
So I’m now wondering whether this month could prove to be the most attractive time of 2013 to buy shares.
Certainly, I would hate for you to miss out on any large gains were the FTSE to recover suddenly and embark on another serious attempt at 7,000.
You never know, a rebound could occur as quickly as June’s falls...
…and you wouldn’t want to be sitting nervously on the sidelines then, would you?
Dazed into a deep freeze
As I’m sure you already know, sell-offs can provide rich buying opportunities for those of us prepared to go against the crowd.
And personally, I love taking a contrarian approach to investing.
I especially like to buy during times such as now…
…when everyone has been selling, or has simply been dazed into a deep freeze after watching a correction wipe 10% from their portfolio.
And I really enjoy buying shares that everybody else hates, or has written off, or has simply forgotten about…
…and building my portfolio around unfashionable shares and unloved sectors that are primed for better times and higher valuations.
In fact, just about every leading investor I can think of, including Warren Buffett, Anthony Bolton, Neil Woodford and John Lee, could be said to take a contrarian approach to their investing.
Because as far as I am concerned, it’s the only real approach I know to ensure you buy shares at cheap prices with good upside potential.
Three contrarian buy ideas for July
To show you what’s on my crowd-free radar, I’ve scoured this uncertain market for some contrarian buying ideas for July and beyond.
I focused on three main features:
- A share price that has recently lagged the index;
- A dividend that survived the banking crash, and;
- A valuation that appears cheaper than the wider market.
Taking those features together, I hoped to pinpoint temporarily out-of-favour companies that have proven themselves over the long term and currently offer an attractive entry price.
I’ve come up with three suggestions.
A byword for shambles
You’ll need to be a real contrarian to consider G4S (LSE: GFS), as for the last few years the share has been a byword for shambles.
The security service specialist is, of course, best known for its Olympic contract fiasco, whereby Games organisers had to draft in the army when the company failed to recruit enough staff.
However, the firm also made an audacious £5bn bid for Danish outsourcer ISS during 2011, only to withdraw the approach two weeks later following shareholder concerns about the deal’s size.
In addition, G4S warned on margins in May this year, which lopped 12% off the share price.
Anyway, here are my stats:
- Lagged the market by 28% during the last twelve months;
- Dividend up 81% between 2007 and 2012;
- Forecast P/E of 11 and projected yield of 4.2% at 230p
Everybody seems to hate this sector
Contrarians have always loved tobacco shares.
You see, ethical investors hate the sector, fervent non-smokers hate the sector…
…and doomsters who keep on predicting the industry’s demise hate the sector.
Meanwhile, the public continue puffing and tobacco companies such as Imperial Tobacco (LSE: IMT) continue to rake in the cash.
Nobody starts a new tobacco company these days, which allows Imperial to boast some pretty impressive numbers. In particular, the group’s UK business enjoys 67% margins as well as a 45% market share.
But Imperial’s recent results were mixed, with half-year profits down 5% alongside confirmation of further 10% divided hikes.
Anyway, here are my stats:
- Lagged the market by 18% during the last twelve months;
- Dividend up 75% between 2007 and 2012;
- Forecast P/E of 11 and projected yield of 5.1% at £23.
Price has gone nowhere for six years
Now I wouldn’t say supermarkets are traditional contrarian investments.
But they can be seen as unfashionable at times, with Wm Morrison Supermarkets (LSE: MRW) in particular – its shares have effectively gone nowhere for six years – looking an ideal choice for those who fear the investing crowd.
As far as I can tell, the lack of market enthusiasm is down to Morrisons’ small online presence and low number of convenience stores. The recession is not helping matters either.
However, recent results were not a disaster, with profits steady and the dividend hoisted 10%.
Anyway, here are my stats:
- Lagged the market by 15% during the last twelve months;
- Dividend up 146% between 2008 and 2013;
- Forecast P/E of 10 and projected yield of 5.0% at 262p.
Roughly 30% upside from the current price
Sure, you may be thinking why you should bother with such dull, slow-growth and/or problem shares right now.
Well, the dividend records of all three suggest they are fundamentally strong companies while their valuations are all more appealing than that of the wider market.
So if the clouds lift and the troubles subside, I am convinced clever contrarian Fools buying now can enjoy superior gains from all three.
Let me finish off by adding one of the trio I’ve spotlighted has just made the cut within the official Motley Fool Share Advisor portfolio.
Indeed, the smartest contrarian brains at the Fool have evaluated the company and calculated its shares have roughly 30% upside from the current price.
I think you owe it to yourself to click here and learn more about Motley Fool Share Advisor…
…and the contrarian opportunity you can buy right now to help put you on the path to long-term wealth.
Until next time, I wish you happy and profitable investing.
> Maynard does not own any shares mentioned in this article.