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4 unloved shares to buy in 2016

Credit: Bill Dan

There is plenty of research to suggest value can be added via a contrarian investment strategy.

One aspect to being a contrarian investor that is vitally important to understand is that just buying last year’s laggards will not guarantee outperformance next year.

For the most part, the market as a whole is highly efficient and stocks become “cheap” for a reason. The key to successful contrarian investing is accurately identifying when an unloved and underperforming stock has become mis-priced by the market.

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) looks set to finish the 2015 calendar year down around 5% which makes for a pretty lacklustre 12 months on the market.

The following four stocks have also performed poorly over the past year, however, their outlook appears brighter.

1. Suncorp Group Ltd (ASX: SUN) is trading at 52-week low levels with a recent profit warning not helping investor confidence in the stock. Cost inflation is driving down margins in the near term, however, in time it’s reasonable to expect that margins should revert back to long-run averages.

If investors begin to look past the near term pressure on earnings, then arguably the stock is undervalued.

2. Coca-Cola Amatil Ltd (ASX: CCL) after losing around 23% in 2014, the stock has failed to bounce back in 2015 (it’s lost a further 3% year to date), but perhaps 2016 could be the year that Coca-Cola Amatil’s refreshed strategy pays off for shareholders.

With the distraction of the Indonesian business now minimised, management can focus on trying to return the domestic business to its former glory.

3. Crown Resorts Ltd’s (ASX: CWN) share price sunk around 25% in 2014. Until a week ago the stock was down close to a further 20% year to date, however, recent speculation that billionaire James Packer is interested in taking this casino company private has seen the share price rally around 9% in the past five trading sessions.

Talk of a takeover – whether it eventuates or not – could be enough to get investors thinking again about the underlying value of Crown’s assets.

4. Navitas Limited (ASX: NVT) suffered a de-rating to its stock back in 2014 which left the share price down 20% for the year. The market failed to regain confidence in the growth prospects for the company during 2015 with the share price falling a further 12% year to date.

With a global footprint and exposure to the growing sector of university education, the long-term fundamentals of Navitas appear sound.

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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.

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