Generally speaking, in the market and in life, there’s safety in numbers. And in many (maybe most) cases, it’s better to go with the crowd. However, there are also times when it makes sense to zig while others zag, which segues into contrarian stocks.
Frankly, these ideas are unloved by the experts. Because of that, it’s difficult to properly assess their true value. With analyst sell ratings come downgraded financial projections. So, on paper, it looks like you’re buying into value traps.
I’m not going to dismiss the guidance of Wall Street experts so casually. However, they are humans – and humans make mistakes. Besides, the greatest upside rewards often stem from ideas that others don’t appreciate until it’s too late.
Granted, these companies present high risk but they also may offer high rewards. If you can handle the potential volatility, these are the contrarian stocks to consider.
Arrow Electronics (ARW)
Based in Centennial, Colorado, Arrow Electronics (NYSE:ARW) falls under the electronics and consumer distribution subsector of the tech ecosystem. Per its public profile, Arrow provides products, services and solutions to industrial and commercial users of electronic components and enterprise computing systems. Some of its products include potentiometers, power supplies, relays and switches.
To be upfront, analysts don’t like ARW at all, rating shares a consensus moderate sell. Further, the average price target sits at $116, implying about 12% downside risk. What’s terrible is that the most optimistic price target is $132, which implies upside of 0.06%. That’s just wrong! Part of the reason for the lack of love centers on downcast projections.
For fiscal 2024, analysts anticipate earnings per share of $10.77. That comes out to a 37% decline from last year. Also, revenue may fall 16.2% to $27.74 billion. While ugly, a recovery may ensue in fiscal 2025, with consensus EPS of $15.06 on sales of $29.63 billion.
Further, with the broader tech ecosystem expanding like wildfire, Arrow should see downwind benefits. Thus, it’s one of the contrarian stocks to consider.
Nordstrom (JWN)
Plenty of people (including yours truly) have cast doubt on the viability of consumer-discretionary-related enterprises. Therefore, it’s not surprising that department store giant Nordstrom (NYSE:JWN) ranks among the most-hated securities. Analysts rate JWN stock a consensus moderate sell with an average price target of $18.89. That implies about 11% downside risk.
Tellingly, the most optimistic price target calls for $22 per share. However, at that rate, we’re talking about growth that’s less than 4% off Thursday’s close. Yikes – that’s all I have to say. Certainly, the company’s earnings report for the quarter ended April 30, 2024 didn’t help. Here, the loss per share landed at 24 cents, compared to an expected loss of 7 cents.
For the current fiscal year, analysts see EPS reaching $1.78, which would be down 16% from last year. Sales may only expand by a modest 1.1% to reach $14.85 billion. However, the factor to consider is the robust labor market. People are continuing to spend, perhaps getting acclimated to the inflationary paradigm.
If so, it’s possible that JWN could reach the high end of fiscal 2025 estimates: $2.01 EPS on sales of $15.39 billion. It may be one of the contrarian stocks to consider.
Western Union (WU)
Falling under the financial services sector, Western Union (NYSE:WU) specializes in money movement and payment services worldwide. While it might seem like a relevant business, it really hasn’t performed that well in the market. Over the past five years, WU stock lost almost 36% of equity value. Unsurprisingly, Wall Street experts have pegged shares a consensus moderate sell.
To be fair, the average price target comes in at $13.19. That implies 2% upside, which is something. However, it’s also nothing to write home about. Financially, the company has put up some decent numbers. Over the past four quarters, its EPS averaged 44 cents. That translates to an average quarterly beat against consensus targets of 12.73%.
So, why the downcast assessment? For fiscal 2024, sales might only reach $4.19 billion, implying almost 4% downside from last year. However, Grand View Research points out that the global remittance market size could expand at a compound annual growth rate (CAGR) of 10.1% from 2022 to 2030.
If so, analysts might be premature in being so downbeat on the payment specialist. But that also might make WU a strong candidate for contrarian stocks to buy.
On the date of publication, Josh Enomoto 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.
