Contrarian investing is one of the hardest strategies in the stock market. To be a contrarian investor you must bet against the market and momentum by looking for real value. Today I’m looking at whether these three beaten down stocks can stage a comeback and make investors some money.
Genel Energy
The Kurdistan-focused oil producer Genel Energy (LSE: GENL) has been under immense pressure due to falling oil prices. Combine that with the volatility and unpredictability of operating in war torn Kurdistan and you can see why its shares are at all time lows.
Cash balances are over $450m and the company is receiving $25m a month from export sales. The company produces 76,000 bopd at production costs of less than $2/bbl from the world class Taq Taq and Tawke fields. Genel has a strong enough balance sheet to see off this low oil price environment and the extremely low cost production will provide enough cash flow to keep investing in the assets. There will also be some appraisal drilling this year, this may provide a much needed catalyst for the share price to rise.
Tesco
Tesco (LSE: TSCO) is one of the UK’s most covered and favourite stocks. The Christmas trading update had much to be optimistic about, with UK like-for-like sales growth of 2.1% and international like-for-like sales growth of 4.1%. The shares trade on a lofty 20.5 PE ratio, but despite this Tesco’s shares have performed well over the last month and are up 19%.
The company operates in a hugely competitive sector and must keep investing just to retain market share and keep profits stable. Analysts see Tesco shares drifting in the next few years, as Aldi and Lidl keep gaining market share from the larger supermarkets. I think Tesco shares are probably one to avoid.
Sports Direct
Sports Direct (LSE: SPD) has also been in the news recently and its shares are down 37% over the last year. Profit warnings and negative media coverage has marked the price down and shares are beginning to look quite cheap. Currently the shares trade on a PE of only 10.2 and have fallen 50% from the 52-week high.
The discount sports retailer has good recovery prospects in the future and should there be any recovery in trading for the company then the share price has room to grow. Even Odey Asset Management has added to its position after criticising the company last year, which may indicate the shares are now good value.
Overall, these three stocks have good turnaround potential. All have weaknesses, but also strengths that should help in the future. When contrarian strategies work there can be some stunning returns to be made and one of these three beaten-down stocks could just well be a winner.
