"Be fearful when others are greedy, and be greedy when others are fearful."
-- Warren Buffett
If you couldn't tell, I'm no fan of following the crowd, and that's been true of my life both in and outside of the stock market.
Speaking strictly of investments, I do most of my buying when people want nothing to do with a sector and tend to sell when investors can't seem to get enough. There are notable exceptions to this rule, of course. The housing sector, for example, is unloved, yet there's no way I'd get within throwing distance of any homebuilding stocks right now. But, in general, Warren Buffett's truism to buy when others are fearful holds... well, true.
Today, I want to share with you three unloved sectors that I've either begun buying into or plan to buy into in the not-so-distant future.
Coal stocks simply can't catch a break. Decade-low natural gas prices are causing electric utilities to switch to natural gas-powered plants to generate electricity. In addition, flooding in Australia, unfavorable coal pricing, and a manufacturing slowdown in China are crunching margins and forcing mine closures in the wake of weaker demand. In January, Patriot Coal
Although there are multiple companies in this sector that appeal to me, my eye remains on Arch Coal
Junior gold miners
I'm not exactly sure when this happened, but gold miners of all forms, big and small, became great value plays almost overnight. There has been a major disconnect between the price of gold and the performance of the miners for quite some time, but the values I'm witnessing throughout the sector are just unsustainable to me. Either gold needs to fall $400 per ounce or gold miners need to correct upwards to match the yellow metal's current spot price.
This is a sector that I've been inching into over the past year and plan to be more aggressive with over the coming months if valuations don't improve. I already own two junior miners in Golden Star Resources and Claude Resources
Even though I've held onto Golden Star the longest of these three, it's Claude Resources that has me the most excited. Claude recently boosted inferred mineral resource levels at its Seabee mine by a clean 236%, which would give it approximately 1.3 million ounces of gold in the ground -- assuming its calculations are correct, of course. The big hurdles for Claude are finding ways to increase production beyond the roughly 50,000 ounces it plans to produce in 2012 and proving that its Madsen mine is another mother lode of reserves. With a handful of gold miners trading at single-digit forward P/Es, it's small Canadian miner Claude Resources that stands out to me.
Telecom equipment providers' inclusion here may come as a surprise to you, as they haven't performed as miserably as coal or gold miners, but most haven't kept up with the rise in the S&P 500, either. Long before AT&T and Verizon made it clear they would be beefing up their capital expenditures in 2012, I made a beeline for the fiber optic sector.
We've all heard the argument before that as the business world transitions from paper to digital, the amount of bandwidth needed to support this data would need to increase. Buying into fiber optic components suppliers is my way of getting ahead of the curve on this trade. Speculators in 1999 through 2001 attempted to do the same thing long before there were actual earnings in this sector, and they were burned badly. Now that there are tangible profits to be had, I happen to adore fiber optic companies.
Micro cap Alliance Fiber Optic Products, a manufacturer of connectivity products for the optics sector, has been a core holding of mine for quite some time. Oplink Communications
I've said it before, and I'll say it again: Sometimes it's smart to play the contrarian. I may not always be getting the best possible price for my purchase (which is fine, as market timing is impossible), but these sectors present opportunities that seem like no-brainers to me over the long term.
What do you think: Am I smart, crazy, or a little bit of both? Tell me about it in the comments section below and consider adding these stocks to your free and personalized watchlist.