If you’ve been paying any attention to the performance of U.S. equities, it has been difficult to not hear about the big names in the market. The meteoric rise of Nvidia (NASDAQ:NVDA), for example, still captures headlines today, as the AI craze rages continues. Also, a host of other Big Tech names are performing modestly well. So far, in 2024, despite some volatility, the Nasdaq has been able to rise over 14% year-to-date (YTD). Comparatively, the S&P500 is trailing at about 11% YTD gains.
Investing in U.S. equities doesn’t have to be about following the herd. Plenty of investors have indeed made a pretty penny off of some unconventional stock trades. Emerging market economies as well as industries outside of the good graces of the public (e.g., oil and gas) are just some spaces from which a contrarian investor can make a lucrative bet.
Therefore, let’s examine three contrarian stocks that forced some investors outside of their comfort zone but allowed them to generate sizable gains.
Embraer (ERJ)
Embraer (NYSE:ERJ) is U.S.-listed aircraft manufacturer that hails from Brazil, one of the world’s largest emerging economies. While Embraer has been around since the late sixties, and it initially focused on supplying military aircraft to Brazilian Armed Forces.
But, the plane maker’s Commercial Aviation and Executive Aviation segments are where most of its earnings come from these days. The Commercial Aviation business designs and manufacturers planes (E-Jets) for commercial airlines, including KLM Royal Dutch Airlines (OTCMKTS:KLMR) and JetBlue (NASDAQ:JBLU). On the other hand, Embraer’s Executive Aviation business manufacturers private jets for high-net-worth individuals and private companies.
Further, the Brazilian plane maker has seen its share’s nearly double over the past 12 months. The successful launch of its new E2 planes has certainly revived investor confidence. ERJ had about 198 orders in backlog and 108 already delivered at the end of last year.
Moreover, speculation abounds that Embraer may be developing a new series of aircraft to compete with Boeing’s trouble 737-MAX lineup. So, it has thrust the emerging market stock into the spotlight and will probably keep contrarian investors intrigued for some time.
Petrobras (PBR)
Petrobras (NYSE:PBR) was one of the best emerging market trades one could have made in 2023. In fact, Brazil’s state-owned oil and gas giant had seen its share price surge 87.9% last year. The presidential win and eventual inauguration of left-wing politician Lula da Silva rattled Brazilian stocks, including Petrobras, in 2022.
Through the first quarter of 2023, many investors believed Lula would pressure Petrobras to lower its juicy dividend or offer oil and gas products at a suboptimal price to the domestic market. When these fears never materialized into any concrete policy initiatives, PBR began to rally.
And, 2023’s weak price gains for oil and gas did not stop Petrobras from turning an immense $25.6 billion profit either. Only recently have profit margins begun to slip in a significant way. The oil and gas company’s first quarter earnings report for 2024 saw profits fall 38% to $4.6 billion due to falling oil prices and narrow margins on diesel sales. Furthermore, the firm approved a $2.6 billion dividend while the market had been expecting something a little higher.
Still, Petrobras proves it can create immense value for shareholders at a relatively cheap price. These days, PBR trades at an insanely cheap 2.6x forward earnings.
Frontline (FRO)
Another lucrative be that has worked out for contrarian investors is the crude oil shipping company Frontline (NYSE:FRO). The oil tanker’s share price nearly doubled in 2023, rising 97.3%. A number of factors were involved here.
While shipping rates had entered 2023 on a downward spiral, prices picked up as an historic drought backed up the Panama Canal. That situation forced ships to wait days or weeks to pass through. Moreover, robust oil demand from Asia commanded higher “ton-miles” (e.g., shipping rate per mile) as more and more crude oil was being sourced from Guyana, Brazil and the U.S.
As a result, Frontline experienced robust revenue and EPS growth in 2023. For the oil tanker firm’s Q1 report in 2024, revenues increased by 16% to $578.4 million. In their earnings report, management delivered a “Tanker Market Update” in which they set out their expectations for the crude oil market. Frontline expects Asia to continue to drive oil demand and anticipates that global demand will accelerate in the year’s second half.
FRO shares have continued their rally, rising more than 33% YTD.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
