My 3 Contrarian Picks For 2014: Petrofac Limited, G4S plc And Tesco PLC

Contrarian investing can be extremely profitable and my contrarian picks for 2013, which included the likes of Huntsworth, Trinity Mirror and Barratt Developments, all outperformed the FTSE 100. With this success behind me, I’m going to try my hand at contrarian investing again this year, and it would seem as if there are some great opportunities to take advantage of.

Unloved oil services

My first contrarian pick for this year is oil services company Petrofac (LSE:PFC). Unfortunately, investors lost patience with Petrofac last year as the company failed to meet its own lofty growth targets. As a result, the company fell out of favour with the market and Petrofac’s shares underperformed the wider FTSE 100 by a staggering 40%.  

However, Petrofac’s long-term outlook still looks promising as capital spending in the oil and gas industry is expected to grow at a double-digit rate for the next few years.

What’s more, Petrofac already has an order backlog of $14.3 billion, enough to lock in two-and-a-half years of revenue at 2012 rates and this backlog should only expand over time. Additionally, the company is focusing on generating recurring revenue, a better longer term strategy than relying on a consistent flow of short-term contracts.

And for those investors who like to seek out value, Petrofac’s recent declines mean that the company is one of the cheapest in the oil services sector. 

Suffering but room to turnaround

My second pick may scare some investors away and is an extremely speculative pick. G4S (LSE: GFS) is still under investigation by the Serious Fraud Office, following acquisitions that the company defrauded taxpayers and the company’s reputation within the UK is in tatters.

That being said, things are not as bleak as they seem as slightly more than half of G4S’ revenues come from outside the UK, where there is a huge potential for growth.

Let me put this in some perspective, G4S’ revenue during 2012 was $11.2 billion, meanwhile, the global security services market was worth a total of $200 billion. This market is expected to expand 7% annually until 2016. So, G4S has plenty of space to grow internationally, even if it is forced out of the UK.

G4S’ turnaround plan is also attractive as the company is selling underperforming assets to reduce debt and profit margins. 

Learning from mistakes

And my last pick is the company that everyone loves to hate, Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US). I’m attracted to Tesco because the company is reworking its expansion plans into new growth markets like China and India. This time Tesco has learnt from mistakes and is driving into these markets with a partner that is already established in the region. Using this method, Tesco has become the first major Western retailer to expand into the lucrative Indian market. 

Other opportunities

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> Rupert owns shares in Tesco. The Motley Fool owns shares in Petrofac and Tesco.