Contrarian investing could be the best way to beat the market.
If you invest the same way as everyone else then you’ll get an average result. Of course, with shares that’s not bad at all if you invest in a low-cost exchange-traded fund (ETF) because average can lead to very strong wealth-building.
Warren Buffet once said “turnarounds seldom turn”, but the ones that do turn around could be strong performers because the market has discounted that company’s chances by so much.
Here are two candidates to come storming back:
Appen Ltd (ASX: APX)
This one may be less contrarian than my second idea, but Appen has seen its share price fall by 33% since the end of July 2019. It’s now valued at a lower price than it was six months ago despite lower interest rates in Australia and the US, and a solid half year result.
The HY19 report showed revenue growth of 60% and statutory earnings per share (EPS) growth of 22%. Most ASX businesses would be pretty happy with profit growth per share of 22%.
Appen operates in a fast-growing sector relating to artificial intelligence and machine learning, so unless one of its major clients walks away, the next few years should continue to show good growth.
It’s trading at under 34x FY20’s estimated earnings, so it looks a lot cheaper than the rest of the WAAAX at the moment.
Japara Healthcare Ltd (ASX: JHC)
The aged care sector has seen share prices decimated over the past few years due to reduced government funding, negative news reports on aged care operators and the aged care royal commission.
But, the aged care royal commission is winding up and now that the dust has settled we could see a number of changes that benefit the large players like Japara. Industry consolidation could be one of the main outcomes as smaller operators exit the industry if they’re no longer able to be sufficiently profitable.
The price that Japara is trading at is still pretty discounted to its assets and historical share price. If it can sustainably grow profit from here, with all of the new operational beds coming online, it could be a decent buy.
Japara is priced at only 19x FY19’s earnings.
Appen seems like it could be the clearer choice being one of the better tech shares on the ASX, but I think that Japara may well turn out to be the better value idea if it can capitalise on the opportunity over the next couple of years to grow its market share.
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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 Appen 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.