What are we looking for?
Stocks the Street hates.
For some investors, a strong consensus on a stock is reason enough to do the exact opposite.
So to try to identify buying opportunities for contrarians, we screened for stocks that analysts hold in the lowest regard.
How we did it
We first limited our search to Canadian and U.S. stocks that had a low consensus recommendation. Bloomberg tracks the analysts covering a stock and calculates an average rating on a scale of one to five, where one is equivalent to a strong sell recommendation and five means a strong buy. We looked for stocks with that scored three or less.
That rating, however, can be overly skewed by a small number of opinions on stocks that have limited analyst coverage. So we screened for stocks with at least five analyst recommendations.
And the stocks had to have at least three “sell” ratings.
Beyond that, we wanted stocks to meet the following conditions: decent size, a good record of performance and a favourable valuation.
Market capitalization had to be at least $500-million, in local currency. The five-year average return on equity had to be 10 per cent or more. And the price-to-earnings ratio had to be less than 17 times, which is about the current average for the S&P 500 index.
What we found
A total of 22 ill-regarded stocks met all of our criteria. Two high-profile Canadian energy names pop out. Canadian Oil Sands has suffered a string of disappointments at its Syncrude Canada oil sands mine in Alberta. And Imperial Oil’s recent investments aren’t expected to generate the same kinds of returns the company has delivered in the past.
While the names on the list might help identify contrarian opportunities, investors should do their own research.
Stocks with a low consensus recommendation
Follow Tim Shufelt on Twitter: