Is it time to buy these 4 beaten-up shares?


Contrarian investing certainly isn’t a style of investing that suits most people. The idea of buying what is unpopular and generally trading at fresh lows just doesn’t sit comfortably with many.

For those who are prepared to stand apart from the crowd and buy what others are selling it’s important to understand that there is a lot more to contrarian investing than just buying out-of-favour stocks – what matters is that you can correctly identify occasions where the market has mis-priced a stock.

Current market volatility which has led to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) falling every trading session this week can create the opportunity for more extreme mis-pricing of stocks to occur.

Here are four stocks which have all just hit new 52-week lows. While declines in their share prices are justified given their decline in business prospects, arguably this is now more than reflected in the share price.

  1. Cardno Limited (ASX: CDD) – while Cardno is directly exposed to the slowing resource sector and earnings are forecast to decline dramatically this year, based on analyst consensus data for financial year (FY) 2017 the stock is trading on a price-to-earnings ratio of just 8 times.
  2. Orica Ltd (ASX: ORI) – like Cardno, Orica’s business is largely exposed to the slowing resource sector. Despite this headwind the group’s explosive products will still be required for mining operations with one analyst consensus forecasting earnings per share (EPS) of 130 cents per share (cps) in FY 2017. With the share price languishing at around $14, the prospective PE is less than 11x.
  3. Santos Ltd (ASX: STO) – predicting the near term earnings of oil and gas producer Santos will be incredibly difficult, however, one thing which is more certain is that the oil price is cyclical. Taking a long-term view of the earnings power of the group could make the FY 2016 forecast for EPS of around 25 cps look like an attractive entry point into the stock.
  4. South32 Ltd (ASX: S32) – being spun-off from parent BHP Billiton Limited (ASX: BHP) hasn’t been a joyous experience for South32 shareholders with the share price sinking over 55% since May 2015. With consensus data forecasting EPS of around 13 cps over the next two years and the share price at 92 cents, the PE of just 7x could represent a cyclical low.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.