It’s no secret that some of the world’s best investors have made their fortunes by buying depressed assets, or contrarian opportunities at attractive prices, and profiting as the businesses recovered.
Indeed, buying when there is “blood on the streets” has been the mantra of US billionaire Warren Buffett ever since he began his investing career.
Right now, the two most attractive contrarian opportunities on the market are Morrisons (LSE: MRW) and RSA Insurance (LSE: RSA).
Making rapid progress
After discovering accounting regularities at its Irish division last year, RSA is in recovery mode and RBS‘s former boss Stephen Hester has taken charge of the turnaround. Mr Hester is well respected within the City and has not wasted any time getting to grips with RSA.
Within weeks of Hester’s appointment, RSA’s new boss announced a £773m rights issue, designed to steady the ship and bolster the insurers balance sheet.
When first announced, this cash call was criticised by some shareholders as being too large. However, RSA’s management believed a rights issue of this size was needed to avoid having to ask for more cash in the future.
What’s more, RSA is expected to raise a further £300m this year through assets disposals, some of which have already taken place. All in all, the company is aiming to raise £800m from the sale of underperforming business units over the next few years.
But despite the need to raise cash, RSA’s underlying business remains profitable and once the company has bolstered its balance sheet, RSA should be able to return to growth.
Further, with around £1.6bn in additional capital being raised, RSA should end up, if anything, overcapitalised — great news for investors worried about the company’s future.
Value on offer
While RSA is a contrarian opportunity in the process of a turnaround, Morrisons is more of a value play.
Indeed, as the UK grocery sector becomes ever more competitive, it’s hard to try and predict if and when Morrisons’ will stage a turnaround.
Still, what is really attractive about Morrisons is the fact that at current levels, investors are placing no value on the company’s property portfolio.
You see, Morrisons owns many of its own superstores, farms and even abattoirs — the total value of this property is in the region of £9bn, £4bn more than the company’s current market value. As Morrisons is trading at such a low value compared to its assets, much of the risk involved with taking a contrarian bet on the company is mitigated, as if worst comes to worst, the company can just sell its property.
Additionally, the supermarket could be subject to a take over as any buyer could purchase Morrisons, break the company apart and sell off the property for a quick multi-billion pound profit — not bad.
