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2 contrarian growth share ideas

Sometimes the best way to generate market-beating returns is to focus on shares that the market currently has fallen out of love with. They may not necessarily be the strongest performers over the next three months or even the next year, but those businesses can quickly turn around if earnings get back on track.

Consider BHP Billiton Limited (ASX: BHP), at the start of 2016 no-one wanted a piece of the big Australian and it dropped all the way to $15. Since then it has recovered by more than 100% and now sits at $32.50.

I’m not expecting the following shares to deliver the same growth, but they look like interesting options:

Greencross Limited (ASX: GXL)

Greencross is Australia’s largest pet company with its Petbarn and Greencross vet chains. The company has a clever tactic of increasing profit margins by co-locating a Greencross vet inside a Petbarn. This saves on costs and hopefully results in cross-selling between the two sets of customers.

The pet industry is a growing one as the number of pets increases alongside the human population. We are also willing to spend more on our pets through the ‘humanisation’ effect with services like pet grooming and pet insurance.

Although the market has cooled on Greencross in recent months due to the new CEO making numerous write-offs and write-downs, this hopefully means Greencross is now starting with a clean slate and can focus on growth.

The company recently gave a trading update where it revealed that total sales were up 9% and like for like sales were up 4.5%, despite the recent problems.

It’s currently trading at 11x FY19’s estimated earnings with a fully franked dividend yield of 4.6%.

MNF Group Ltd (ASX: MNF)

MNF is a major voice over internet protocol (VoIP) provider, it has major clients like Skype and Uber.

Being able to supply cheap, high-quality voice services is integral for many organisations like governments and companies, which is why MNF’s offering is so attractive.

Investors don’t seem too pleased that MNF is launching over-50 telecommunications brand “Pennytel”. The over-50 demographic is a growing one, so it’s not a bad idea. MNF could decide to stop investing in the idea if it doesn’t work out. If it does work out then MNF has a new avenue of growth.

MNF has proven to be a strong, growing business over the past five years and I think the current share price is an opportunity.

It’s currently trading at 26x FY18’s estimated earnings.

Foolish takeaway

There’s a decent chance both of these shares could be market-beaters over the next two to three years. After all, the best time to buy is when people are fearful of a share (as long as that share has a good chance of future growth).

If I could only choose one to buy today I’d probably go for MNF, there are still a few question marks hovering over Greencross at the moment, particularly due to online retail competitors.

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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited. The Motley Fool Australia owns shares of and has recommended Greencross Limited and MNF Group 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.

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