The Top 3 Contrarian Stocks to Buy in November

Going against the herd can be difficult, but it can lead to some of the best opportunities, like Western Forest Products (TSX:WEF), which is set for a breakout.

| More on:
Going against the grain

Image source: Getty Images

Companies whose share prices have been declining recently, especially when the market has been so strong, could be a red flag for investors.

Sometimes, though, a company may have a short-term issue or industry headwind that may be impacting its price, and for long-term investors, these types of things don’t matter.

In fact, these troughs in the share price cycle create the best opportunities to buy, as long as the company can actually recover from its issues.

This is why contrarian, long-term investors have one of the best investment strategies on the market. Following the herd will never yield you the best results, but knowing what the herd is going to do, and doing it first, is a sure-fire way to achieve great wealth.

Three contrarian stocks for long-term investors today are A&W Revenue Royalties Income Fund (TSX:AW.UN), Surge Energy (TSX:SGY) and Western Forest Products (TSX:WEF).

A&W

A&W, despite being one of the top income stocks on the TSX and a great growth performer over the last decade, has been unloved by shareholders recently. Since the end of July, the stock is down about 15%, and it’s roughly 33% off its 52-week highs.

There doesn’t seem to be a good reason for the pullback in share price, especially given that A&W continues to see growth from strong increases to comparable store sales but also by opening new stores.

It has slowly and quietly become the second-biggest brand for fast-food burgers in Canada through quality execution, staying on trend, and giving consumers what they want, as well as high-quality marketing.

The stock has fallen to a point where it’s attractive for its growth potential, and its dividend yield has now grown to roughly 5.1%.

There’s no reason A&W’s growth should slow down anytime soon, so an investment today is sure to be one of the top contrarian plays for the rest of the year and going into 2020.

Surge

Surge Energy is a small-cap oil producer and like many of the small oil companies its stock has been one of the most unloved in the sector. It has had a rough couple of years and it’s only gotten worse recently, down nearly 20% since the end of July.

Its dividend yield has grown to nearly 10%, signalling that investors think it may need to be trimmed once again.

I’m not so sure that the probability is that high. Surge has stated that its breakeven price, including funding the dividend, is at $55 WTI, which has more or less been the average of WTI’s trading range this year.

The dividend is by no means completely safe, but for it to be yielding nearly 10%, I think it’s a little extreme, and given that Surge is one of the best operators, long-term investors know their interests will be protected.

Western Forest Products

Western Forest Products has had a rough year, to say the least. Its stock is down roughly 40% year to date, and the company has dealt with its fair share of issues.

The entire sector has had a rough time the last few years; however, now its stock seems to have bottomed.

Western Forest is a top company in a highly cyclical industry, so although its stock price looks like investors are anticipating a tough future, the company is still underpinned by quality assets and operations.

It also has a strong balance sheet and is well capitalized to deal with any cash flow issues in the short term.

It’s a long-term play that will recover, as more investors come back to the stock and the industry recovers, but for now, investors willing to wait will receive a dividend that yields nearly 7.5%.

Bottom line

Going against the herd can lead to some of the best investing opportunities, especially for long term, value-oriented investors willing to buy and hold.

Of course, there is inherent risk going against the herd, but if you know what you are doing and are confident in your research, there is no reason why the stocks shouldn’t recover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. A&W Revenue Royalties is a recommendation of Dividend Investor Canada.

More on Investing

Aircraft wing plane
Coronavirus

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

A plant grows from coins.
Stocks for Beginners

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Are you looking for growth at a good price? These two growth stocks may be climbing but have far more…

Read more »

A worker gives a business presentation.
Investing

5 of the Best TSX Stocks to Buy in July

Are you ready to push some cash into the Canadian stock market? Here’s a well-rounded basket of five great companies…

Read more »

Payday ringed on a calendar
Dividend Stocks

This 7.7% Dividend Stock Pays Cash Every Month

Freehold Royalties is a TSX dividend stock that offers you a monthly payout and an attractive yield of 7.7%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, July 16

The TSX Composite Index has notched new record highs for three consecutive sessions, showcasing its upward momentum.

Read more »

Canada day banner background design of flag
Investing

3 Canadian Growth Stocks Everyone Should Own

These three stocks are excellent additions to your portfolio, given their solid underlying businesses and healthy growth prospects.

Read more »

Dividend Stocks

2 Stocks to Buy Right Now With $2,000

If you have $2,000 that you don't need for a long time, consider these two TSX stocks that could deliver…

Read more »

Top TSX Stocks

3 Stocks to Buy While They Are on Sale

Looking for some of the best stocks to buy? Here are a handful of options that can provide growth and…

Read more »