Here's why contrarian investments may be the way to approach the market: Once upon a time, a successful businessman and political figure by the name of Joseph Patrick Kennedy, father of U.S. President John F. Kennedy, went to get his shoes shined.
The shoeshine boy, perhaps feeling a need to impress, graced Kennedy with some stock tips. Kennedy, far from impressed, had an insight: If everybody, including the shoeshine boys, were confidently investing in the stock market then it was time to get out.
This was right before the Stock Market Crash of 1929, the most devastating stock market crash in U.S. history, and the beginning of the Great Depression. His contrarian decision -- the decision to go against the popular trend -- helped him survive the crash.
Fast forward some 90 years and take a look at the market today. Investors are fleeing in droves as stocks take beatings from negative headline news at home and abroad. Investor confidence is shot. In fact, the idea of "mom and pop investors" is just about dead.
Contrarian alert: If every one starts moving away from stocks, it means that there are potentially more buyers in a few years time. Prices will rise with the influx. Get in now, and you may be rewarded.
Is the reasoning of too few investors any different than Kennedy's radical decision to take his money and run because there were too many?
Business section: Investing ideas
So, we're wondering, are there any contrarian ideas being targeted by bearish investors?
For ideas, we collected data on short-seller trends, and identified a list of stocks that have seen a sharp increase in shares shorted over the last month (i.e., an increase in bets that these stocks will decline).
This is significant, especially when you consider that short-sellers tend to be more sophisticated investors (because of the fact that they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying close attention.
To further refine the quality of our list, we collected data on institutional money flows, and identified the short targets that have seen significant institutional selling during the current quarter.
Big money managers have extensive resources to analyze investing ideas. So if they're dumping a certain stock, it's worth paying close attention.
Sophisticated investors, like hedge fund managers and short-sellers, think these stocks are in trouble -- do you agree? Or is this excessive pessimism a contrarian buy signal?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Netspend Holdings
2. The Talbots
3. Central European Distribution
4. Resolute Energy
6. VanceInfo Technologies
7. Gentiva Health Services
8. Amkor Technology
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.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance, institutional data from Fidelity.
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