Contrarian picks from the master

After speaking at the MoneyShow in Orlando, I had a very nice sit down with Benj Gallandar. Benj is co-editor of Contra the Heard investment newsletter.

I really like their work, and it was a real pleasure to meet with one of the true contrarian investors out there. Benj and Ben are patient. They buy currently unpopular stocks with a reasonable chance of either takeover or recovery based on sound fundamental analysis. They have enough diversification in their portfolios to offset the obvious risk that a pure contrarian style entails. The great thing about these guys is that they use a value target, but also incorporate some market timing aspects to the trade. In fact, what started our conversation off was Benj’s question during my presentation as to why I hate calling what I do (technical trading rules) “market timing”. Why not call a spade a spade?

I noted to Benj that many investors have been so brainwashed by the mutual fund, bank and buy/hold camp that you “can’t time the markets” – it’s almost fighting words to mention the term. Moreover, most of these buy/hold types don’t really understand what market timing is. They actually think that market timing means picking peaks and troughs. Can you imagine being able to do that? As I say at my seminars—if you can prove you are able consistently pick exact peaks and exact troughs – please come work for me. Starting salary is $1MM.

No, market timing is not clairvoyance. Market timing is simply risk vs. reward analysis. It’s a probability measurement. If a trend is in place, probability is it will continue. When the trend shows signs of topping, or bottoming, we want to wait it out and not make guesses as to its future. When it does break out (up or down), we can now apply some probability of its future direction. But in each case, there are no guarantees. Buy and hold investors face the same dilemma. Do you buy in October 2000 or October 2007? Then do you hold as over 50% of your wealth disappears and isn’t recovered for 3 years? More importantly: will your stocks survive – even if “the market” does recover…did you hold Nortel in 2000 or Sino Forest or junk bonds in 2007?

Back to Benj…

I thought I’d look at a few stocks that Benj likes. Remember, Benj, like every intelligent investor, has a diversified portfolio of many stocks. These are just 3 stocks I randomly selected from his fairly recent past recommendations. I may have picked his 3 worst stocks –we will never know. But I thought it might be fun to combine his deep value style with my “market timing” technical analysis to see if his stocks would stand up to my analysis. Here goes:

 

Blackberry (BB-T)

Benj thinks Blackberry is undervalued. So do we. Craig (VT’s resident CFA) thinks the stock has upside potential. They are big on automotive software – a growing industry. The monthly chart below shows us a rough triangle—with rising troughs. The stock is rebounding off of the lower trendline. It targets anywhere in the high teens. That would be a huge move from here. We own a small position of the stock in our ValueTrend Equity Platform. It’s not without its risks, but the stock presents some serious upside if the market catches on to it. Thumbs up to this call by Benj.

 

 

AEG (AEG-N)

Benj thinks this huge insurance company based in Holland has enough of a dividend to warrant the risk. The company is selling some assets and hopes to turn the ship around after a large selloff. We used to own this stock but sold it out of the VT Equity Platform as it broke $6. Technically, we can’t agree with Benj on this one.

 

Cathedral Energy SC. (CET-T)

Benj thinks that, despite the devastating downward move on the sector, and on this stock  – this company has been making all the right moves. It’s a penny stock and thinly traded. At ValueTrend, we don’t buy this type of small capped stocks, but for the higher risk speculative retail investor, it can be an option. The chart shows us it broke support at just under $1/share recently. Its trying to base. We wouldn’t be buyers – even if we did buy thin stocks- unless it busted back above $1/share.

Conclusion

Benj is a deep value guy. As such, some of the stocks he picks are not for the faint of heart. And investors need a ton of patience. Still, he tends to be a pretty good stock picker and his long termed performance proves this. Retail investors who use technical analysis to further filter his stock picks for timing might benefit from his service, especially if you like contrarian picks

2 Comments

  • Hello Keith,
    I have seen Benjamin on BNN and contrarian investing is one strategy amongst many, picking sectors out of favour take guts and patience. Although I like your approach better.
    The strategy I am currently employing is sitting on 100% since late Nov. 2018. I am shocked how this market keeps going up now for 8 weeks in a row. Technical indicators show that it is overbought, our spider sense tells us it’s overbought, and yet it keeps going up, and up. I know a market can stay overbought for a long period. Yet, I am wondering, Keith, do you believe the ‘smart money’ is driving the market higher or is it simply momentum players (fund managers).
    I refuse to buy into this market.

    Reply
    • Stan–there is some smart money moving into the market, but at the same time, the enthusiasm is much higher amongst the dumb money–sentimentrader.com’s smart dumb lines show way overbought dumb money movement, whereas a neutral but rising smart money. So there is not a divergence between their opinions – they are both bullish, although smart money is less so.
      My indicators are showing some overbought levels along with a higher than normal macro risk indication (Bear-o-meter) so we hold cash–although we still have 60% + in the market.
      I’ll blog on my outlook again today or Thursday

      Reply

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