Three top stock picks from Contra The Heard’s Benj Gallander

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Benj Gallander is president of Contra The Heard Investment Letter. His focus is contrarian investing.

Top Picks:

GSE Systems (GVP-NYSEMKT)

GSE's losses have been reduced and profitability is likely not far away. Revenues are growing as is the backlog. The company has cash in the bank and zero debt, and insiders own about 17 per cent. The share count has been dropping. Initial Sell Target: $5.74

Cathedral Energy (CET-TSX)

The drilling field is not attractive to many investors these days making it more interesting to us contrarians. CET is retrenching, having wisely reduced capital spending and the dividend. Debt was reduced by 38 per cent last quarter to $35-million. This firm should be one of the survivors when this sector improves. Initial Sell Target - $10.34

First United Corp. (FUNC-Nasdaq)

This bank did not dilute the share count during the recession. It is selling at about two-thirds of book value, has good financial ratios and will likely reinstate a dividend before the end of next year. It used to pay $0.20 a quarter. Initial Sell Target $21.24

Past Picks: May 23, 2014

Capstone Infrastructure (CSE-TSX)

Then: $4.27; Now: $3.59 -15.93%; Total return: -8.92%

Harmony Gold Corp. (HMY-NYSE)

Then: $3.00; Now: $1.79 -40.50%; Total return: -40.50%

First United Corp. (FUNC-Nasadq)

Then: $8.37; Now: $9.07 +8.36%; Total return: +8.36%

Total return average: -13.69%

Market outlook:

The realization is occurring that lower oil prices are not all evil and actually provide tremendous benefits to many sectors of the global economy. Stock markets are recognizing this. Though not tomorrow, interest rate increases and inflation, rather than deflation, will become the concern. Meanwhile, many share buybacks at inflated prices, coupled with borrowed money to support this action, will hurt many enterprises and be deemed foolhardy as rates go up.