Contrarian ASX share ideas could be the way to beat the market over the next year or two.
Resource shares are close to their highs, tech shares are at very high valuations and defensive shares are priced for low interest rates being low for a long time.
If you want to beat the market average, you need to invest in things that a lot of other people aren’t investing in.
Cheap shares are often cheap for a reason, businesses that have seen their share prices crushed are usually in trouble. So, just because something has gone down doesn’t mean it’s better value. But, going contrarian could be a good idea if it makes sense.
With all that in mind, here are three (very) contrarian ideas:
Japara Healthcare Ltd (ASX: JHC)
The Japara share price has fallen 62% since the start of 2016 and it’s down 30% over the past year. It has definitely been beaten up.
Aged care is no longer a popular sector with limited government funding growth, an aged care royal commission has also put a cloud over the sector. But, there aren’t many hearings left. The effects of this could see industry consolidation, bringing more power to the larger players like Japara.
Japara has an impressive pipeline of potential development projects which should raise its revenue and profit over the longer-term.
The ageing population could be an ultra-long-term tailwind that makes Japara worth holding for many years to come.
Experience Co Ltd (ASX: EXP)
Tough weather conditions and a fall in tourism spending has hurt Experience Co’s share price, it’s down 70% since mid-December 2017.
An impairment led to Experience reporting a statutory loss in FY19 of $48.3 million. However, a turnaround of consumer sentiment after the federal election could see tourism stabilise during FY20, making today’s share price excessively pessimistic.
Unless climate change is going to mean more frequent extreme weather in Queensland, this could be an opportune time to buy shares with earnings affected by both weather and economic conditions at the same time.
Citadel Group Ltd (ASX: CGL)
The IT business has seen its share price dropped 54% since the middle of February.
If management are correct in their assessment of the situation, that project spending has only been delayed (because of the election) rather than cancelled, then FY20 could be a much better year.
Government organisations will always need technology for their operations. Indeed, you’d hope our governments will keep paying for better and better tech so that they can do their jobs more efficiently, accurately and more securely.
If Citadel expands overseas it could open up an impressive growth runway.
Out of the three, I think Citadel is the least risky and perhaps the best value trading at 17x FY20’s estimated earnings and 12x FY21’s estimated earnings. I think Japara is too reliant on government funding (which is very slowly growing) for me to feel at ease and betting on the weather may be too much of a gamble with Experience Co.
Other ASX shares that could poised to beat the market over the next couple of years are these leading stock ideas.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended EXPERNCECO FPO. The Motley Fool Australia has recommended Citadel Group Ltd. 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.