Six Contrarian Picks

These companies are out of favor for one reason or another, but they could pay off for patient investors.

- NELLIE S. HUANG

WHEN THE STOCK MARKET IS hitting new highs and even the laggards are rising, what’s a contrarian investor to do? Contrarian investing centers on buying segments of the market that are currently out of favor, and since late 2020, the investments that had been unloved— value-priced stocks, shares in small and midsize companies, and even foreign firms—have soared in price. “It’s tough to be a contrarian” these days, says Janet Johnston, chief investment officer at TrimTabs Asset Management, “because everything is working.”

But a few options remain for investors who aim to move against the crowd. Instead of scouting wide swaths of the market, however, today’s contrarians must be selective. A good choice might be a company trying to emerge from a scandal or crisis, or a firm in the middle of a change in strategy—or maybe a business that’s dealing with a temporary setback, such as a failed acquisition, says Thyra Zerhusen, chief executive and chief investment officer of Fairpointe Capital.

Wherever they spot opportunities, successful contrarian investors don’t abandon the basic tenets that guide good stock picking. It’s best to stick with high-quality companies— firms with strong balance sheets, solid business strategies and niches in their respective industries, and talented executives at the helm. Look for a catalyst for change, such as a new chief executive, a bold restructuring program or a new product about to launch. Avoid firms in declining industries, such as broadcast television, print media and coal, which face long-term, uphill challenges.