The Motley Fool

You can make big returns with unloved shares

The funny thing about investing is that two people with opposite opinions about a business can both be right. A business may be in decline over the long-term, but in the short-term the share price could get a big bounce.

I often talk about how I only invest for the long-term and prefer shares like Challenger Ltd (ASX: CGF) and InvoCare Limited (ASX: IVC). Hopefully they prove to be successful long-term investments.

It would be fairly easy to say that Nine Entertainment Co Holdings Ltd’s (ASX: NEC) market power is nowhere near as strong as it was 20 years ago. Free-to-air television businesses are no match for Facebook and Alphabet (Google) right? Yet, the share price has gone up by 186% since the end of October 2016.

Every share punter was saying that Cabcharge Australia Limited (ASX: CAB) wouldn’t have long to live. Uber was supposedly going to take its lunch in no time at all. Since its low in March 2018 it has gone up 45%. In three months this ‘dinosaur’ stock has dramatically outperformed the market.

Infigen Energy Ltd (ASX: IFN) is down over 40% since mid-2016, yet it’s up 17% since the end of March 2018.

My point here is that every business has a value at some point and perhaps is undervalued if it keeps going down.

Foolish takeaway

However, that’s not to say you should suddenly start investing in shares that have tanked. If you have a knack for valuation and a high-risk tolerance then those opportunities are there, but I’d much rather stick to my long-term buy-and-hold investment strategy.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and InvoCare Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.