What is contrarian investing? It “is an investment style in which investors purposefully go against prevailing market trends by selling when others are buying and buying when most investors are selling,” as Investopedia explains it.
You can capitalize on the bears by buying stocks when the negative sentiment around them is immense and hold until the stocks recover to more normalized levels. You should have a strong conviction about the underlying companies whose business performance ultimately drives the long-term direction of the related stocks.
Here are some top TSX stocks that are down and worth a closer look.
Big Canadian telecom stock
Admittedly, it would have been more timely if I had written about Rogers Communications (TSX: RCI.B) in this context a couple of months ago. That said, the big Canadian telecom stock still trades at the cheapest price-to-earnings ratio (P/E) compared to the other two big Canadian telecom stocks.
Contrarian investing has certainly been playing a part in Rogers Communications stock’s recent rally. It hit a bottom of about $50 in late October. Actually, this formed a double bottom with the prior bottom made in October 2022. Bouncing from $50 this time, it was a cue to potentially buy.
Importantly, the telecom makes resilient earnings through the economic cycle and is expected to continue growing its earnings at a good clip over the next few years, which would help drive the stock higher.
At $63.40 per share at writing, Rogers trades at a P/E of about 14.2 and offers a dividend yield of north of 3.1%. Sure enough, analysts generally think it’s a decent buy here. The analyst consensus 12-month price target of $75.50, as shown on Yahoo Finance, represents near-term upside potential of 19%. The stock has the potential to grow investors’ wealth, primarily from price appreciation, although, of course, its dividend supports the overall returns as well.
Small-cap insurance stock
Here’s a contrarian stock that the market hasn’t shown a lot of love to in the last year. As a small-cap stock, Trisura Group (TSX: TSU) has lower trading volumes that could result in higher volatility in the stock in either direction when there’s good news or bad news.
Trisura is a specialty insurance company that has business lines operating in surety, risk solutions, corporate insurance, and fronting. It highlights that it has a strong underwriting track record over its 17 years of operation in Canada. Additionally, it has a U.S. specialty insurance company operating as a hybrid fronting entity that participates in the admitted and non-admitted markets. Management believes growth will be supported by expanding distribution relations in its existing business lines as well as growth in its hybrid fronting model in Canada and the United States.
The stock is down about 27% over the last 12 months. However, it looks like it is holding up at current levels after some consolidation. The growth stock doesn’t pay a dividend, which will push for more upside should the contrarian idea play out. Analysts are highly bullish on the stock with a consensus 12-month price target of $50.86, which represents a whopping upside potential of almost 52% based on the recent price of $33.54.
