Going against the crowd isn’t easy. When everyone runs one way, it is hard to charge ahead in the other direction. Yet with the stock market, being a contrarian can be profitable. As Warren Buffett has said, be fearful when others are greedy, and greedy when others are fearful.
Now it is quite difficult to get analysts to rate a stock as a sell. Whether it is because they don’t want their firms to lose out on potential fees from financings or just because the overall direction of the market is up so most stocks will rise, labeling a stock as a sell is relatively rare. Yet Wall Street hates the three companies below. You, however, should love them.
These companies are contrarian stocks to buy. The market is saying run away. But if you want to make outsized profits, these are some of the best stocks to embrace.
Hormel Foods (HRL)
Packaged meats producer Hormel (NYSE:HRL) is best known for its branded meat products such as Jennie-O, Dinty Moore and various Hormel brand goods. But it also owns Spam and Skippy and relatively recently acquired the Planters brand.
Despite having such a strong portfolio to rely upon, Hormel stock is down almost 8% over the past year as inflation, high interest rates and avian flu worked to undermine sales. And it just announced a recall of some Planters products over potential Listeria contamination.
Wall Street doesn’t much like the packaged meats producer. With shares trading just under $36 a stub analysts have a consensus one-year price target of $31 per share and a “sell” rating on the stock. This could be a chance to beat the crowd on Hormel stock.
Hormel products tend to be the No. 1 or No. 2 brands in their respective categories, and they enjoy low but stable growth trajectories over time. In its fiscal first quarter, sales rose 1% to $3 billion on a 4% increase in volume. As a leading brand name producer, it has pricing power in the marketplace. It is using that leverage with stronger profit growth expected in the back half of the year.
Shares are moving higher in 2024, up 13% so far, and buying now would let investors beat analysts before they change their minds.
Canopy Growth (CGC)
Despite Wall Street being sour on marijuana stock Canopy Growth (NASDAQ:CGC), investors seem to understand better the potential that legalization in the United States and around the world has for the company. Shares have doubled so far this year after Germany legalized recreational use of cannabis and the U.S. Drug Enforcement Administration moved to reclassify marijuana. It will no longer be a Schedule I drug like heroin and LSD but instead will be moved to Schedule III. That’s not legalization, of course, but it moves the U.S. one step closer to common sense.
Unfortunately, Canopy Growth and other marijuana stocks have been strangled by government regulation and ineptitude in Canada. First the government slow-walked introducing new regulations after cannabis was legalized there in 2019 and then burdened producers with red tape when they finally did offer guidance. The result is illegal marijuana is still cheaper than the legal stuff. As 60% of Canopy’s sales come from Canada, the pot stock has been hurt.
Germany should be a growth market for it. Because Canopy Growth has extensive medical marijuana operations in Germany, it is one of only a few pot stocks that will benefit from legalization. And unlike Tilray Brands (NASDAQ:TLRY) or Cronos Group (NASDAQ:CRON), which would need to make acquisitions to get started, Canopy has operations in the U.S. should the government finally legalize marijuana here.
Yes, Canopy Growth stock has roared to life this year, but there is plenty more room to run while Wall Street says sell.
Franklin Resources (BEN)
Best known for the Franklin Templeton family of funds it owns, Franklin Resources (NYSE:BEN) is a leading asset manager with $1.64 trillion in assets under management (AUM). That is a 13% increase from its fiscal first quarter. It enjoyed long-term net inflows of $6.9 billion last quarter and closed on its acquisition of Putnam Investments. That will be a key driver of future growth because it gives Franklin greater exposure to insurance and retirement channels.
Franklin Resources has also been acquisitive in the alternative asset market after it embarked on a multi-year diversification journey. Multi-asset AUM rose 6% during the period. However, the investment manager enjoyed across-the-board gains in AUM for all of its segments, particularly equities, which rose 27%.
That’s not surprising. When the stock market faltered last year and Wall Street downgraded the stock, Franklin, like most investment managers, saw outflows from its funds rise. But with the stock market running higher again, inflows are surging.
Franklin Resources stock goes for just over $24 a share. That implies almost 7% upside from analysts one-year price targets of $26 a stub. Yet they still have a “sell” rating on its shares. That means investors buying this Dividend King now can enjoy a steady stream of income along with the capital appreciation that is on the way.
On the date of publication, Rich Duprey held a LONG position in BEN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
