A contrarian investor buys when everyone is selling and sells when the masses are buying. In other words, a good contrarian buys fear and sells greed.
It works for one very simple reason: Once all the buyers have bought, there is no one left but sellers. The asset has to go down and vice-versa.
I’ve made a lot of money both for myself and my readers over the years by recommending good stocks that are out of fashion.
If you remember me from my decade of writing for Energy & Capital, you may remember I was recommending AI, Semiconductor, and tanker stocks well before anyone. I recommended Plantir (PLTR) for around $8, it is now in the mid-$20s.
I bought a huge amount of oil tanker stocks two years ago. One’s like Scorpio(STNG) are up 331%. I told you to buy ASML – the semiconductor supplier on a podcast when it was in the mid $400s. It is now at $985.
These types of returns seem unlikely, but they happen all the time. The biggest and fastest gains happen when all the sellers have sold and there is nowhere else to go but up.
George Soros is famous for saying “Find the lie in the market and exploit it.” A contrarian investor does just that.
If you want a real-life example of how it works, just look at Michael Burry. He bet big against the subprime mortgage market around 2006. You may have heard about him from the movie The Big Short.
It is estimated that he made $100 million on his trade and his investors made $725 million. Not bad…
What Does Everyone Hate?
The question a good contrarian asks is what does everyone hate? Two years ago everyone hated oil. Wind turbines and solar panels were enough to power the globe… Oil even traded negative for a day! What a contrarian buy signal that was!
Today, ExxonMobil (XOM) is hitting all-time highs and coal companies like Alliance Resource Partners (ARPL) are up 647% off the bottom and still pays a 14% dividend.
So, to answer the question regarding the most hated stocks it is office REITs and pot stocks.
We are too soon for the office REITS though some price charts seem to have found a bottom, and if we do get some rate cuts things could change. But still, it’s too soon.
This leads us to marijuana stocks which have been absolutely murdered over the past few years.
The Tide is High
High Tide (HITI) is Canada’s top revenue-generating cannabis company with over 168 brick-and-mortar retail stores. The company makes more than $500 million in revenue a year though it has yet to turn a profit.
The company has concentrated on cash flow over growth for the past three quarters with some success. They will open 20 to 30 new stores by the end of 2024.
Here is the five-year chart:
These are the types of charts I love. All of the long-term sellers have sold in 2022 and 2023. All that is left is the insiders and those who forgot they own it. That recent volume spike is the smart money getting back in on the bottom.
As you can see the downtrend is broken and the stock is up about 300% off its lows. This is a tiny stock with a market cap of just $200 million so this sort of move off the bottom isn’t unusual.
Catalysts for future growth come from Germany which recently accepted laws making cannabis legal for recreational use and the passage of the SAFER banking act in the U.S. which would allow High Tide to operate in the states.
There are many other cannabis stocks out there with similar charts. It’s worth taking a look.
All the best,
Christian DeHaemer
Outsider Club
