When assessing the viability of contrarian stocks, it’s generally better to go against the crowd, not against analysts. Retail investors can sometimes get sucked into groupthink. However, analysts peg their reputations (and their livelihoods) on their calls. So, they don’t usually make reckless recommendations.
Further, when an analyst issues a sell rating, that almost always represents an indictment. You see, Wall Street’s top experts love to keep relationships with publicly traded companies. That’s why they’ll use diplomatic terms like “hold” or “market perform” when they really mean sell this you-know-what. So, when they actually issue a sell rating, there might be a relational breakup in that move.
Still, analysts are humans, not gods. They make mistakes and their record overall is far from perfect. Understanding this point, below are possible contrarian stocks to buy, not sell.
Cronos Group (CRON)
Let’s face reality – Cronos Group (NASDAQ:CRON) in practically any other circumstance would fully deserve its sell consensus rating among analysts. Over the past five years, CRON stock lost almost 86% of equity value. Now, in the past 52 weeks, it’s been laying the foundations of a comeback, driving up roughly 35%. Still, such steep prior losses are difficult to ignore.
That said, we can’t ignore that Cronos represents a political play. As I mentioned last week, cannabis companies have been swinging higher recently off legalization-favorable comments by Vice President Kamala Harris. Specifically, Harris seeks a reclassification of marijuana. Doing so should greatly help the Biden administration, which suffers from a poor job approval rating.
Thinking about this issue deeper, it may not be something that Republicans can pivot to. With former President Donald Trump aggressively pushing the law-and-order message, suddenly promoting weed would be a radical departure.
So, CRON is rising off the backs of political momentum and so it’s one of the contrarian stocks. You may not like the financials or the prior performance. Just don’t fight the tape.
Cheesecake Factory (CAKE)
At the moment, analysts rate Cheesecake Factory (NASDAQ:CAKE) as a moderate sell and it’s not even close. Out of 11 expert voices, only one issued a buy rating. The other ratings are six holds and four sells. That’s not exactly a ringing endorsement. Overall, the average price target sits at $34.73, which is basically at parity with Friday’s close.
In the past 52 weeks, CAKE has moved up a bit over 2%. So, what’s the case for it being among the contrarian stocks, you ask? While it’s true that restaurant sales are generally down, certain brands may rise above the muck. I believe that will be the case for Cheesecake Factory. Fundamentally, the company benefits from “location, location, location.”
While shopping centers may be going the way of the dinosaurs, Cheesecake makes sure its restaurants are located in the hippest parts of town. If you know the San Diego area, there’s a reason why the central Cheesecake Factory restaurant is located in Fashion Valley, not Mission Valley.
There’s also the confidence factor that in the fourth quarter, Cheesecake beat its target for earnings per share by 10%. It’s risky but it could be a buy.
Robert Half (RHI)
If you stay in this business of discussing the public equity market long enough, you’re going to have your fair share of clunkers. For me, it’s Robert Half (NYSE:RHI). Robert freakin’ Half. Over the past 52 weeks, it has moved up only 6.5%. That’s not the type of performance I had in mind. Unfortunately for stakeholders, the jobs market has proven to be incredibly robust.
Stated differently, white-collar professionals aren’t exactly hitting the panic button. Therefore, Robert Half’s services have lost some of their sheen. Essentially, they represent a middleman entity, connecting qualified, vetted workers with employers. It may sound like a redundant business given that professionals can choose to directly apply for positions.
However, consider the cost of a bad hire. Overall, the entire process of recruiting and onboarding a new employee (good or bad) can be as much as $240,000. If they themselves turn out to be clunkers, that can add up to 30% of the employees’ first-year earnings.
Fundamentally, I think more companies will start doing the math. Therefore, I believe RHI is one of the contrarian stocks to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.