Roughly $75 billion has been withdrawn from U.S. equities in the trailing five months, eclipsing the $73 billion outflows in the five months following the Lehman Brothers collapse, reports Bloomberg. Investors who continue to abandon the markets are adding to the "$2.1 trillion rout in American stocks."
It seems retail investors are more bearish on stocks now than they were after the Lehman bankruptcy. Severe pessimism has taken hold. Bears argue that there is "no end in sight to the decline" that began in August. Investors see the market's unforgiving volatility and record high correlation to the political stage, and many prefer to retreat.
In contrast, bulls are finding a silver lining in what they see as an opportunity-rich market. They are acting like contrarian investors, going against the crowd and searching for opportunity in unpopular positions.
One common mind-set of contrarians is that excessive sentiment (either bearish or bullish) can lead to a mispriced stock, which becomes an investing opportunity as the market corrects itself. That's not to say that pinpointing "excessive" sentiment is an easy task.
"Bulls say the retreat by individuals has been a reason to buy since the bull market began in March 2009 and withdrawals mean money is available to buy stocks in the future," according to Bloomberg.
Looking for contrarian ideas? We created a list using the contrarian mind-set.
We started with a universe of about 200 stocks that have seen significant institutional selling during the current quarter, then identified the most undervalued stocks relative to free cash flow. To further refine the list, we collected data on short trends and identified the companies that have seen a significant decrease in shares shorted over the last month, a bullish change.
Short-sellers think most of the bad news is priced into these undervalued stocks that have been dumped by institutional investors -- do you agree?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
3. Dex One
4. Lexmark International
6. China Valves Technology
List compiled by Eben Esterhuizen, CFA.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Institutional data sourced from Fidelity. Levered Free Cash Flow data sourced from Yahoo! Finance.