How to Build a Winning Stock Portfolio Using a Contrarian Strategy
Do you want to make a safe bet in the stock market during the traditionally weak months of August and September? If so, then you should consider following a contrarian strategy. This strategy involves buying stocks that most stock analysts are advising selling. While it may go against popular opinion, it has proven to be successful, outperforming the S&P 500 by a wide margin.
Using the Finviz Stock Screening Program
The first step in building your winning portfolio is to use the free Finviz stock screening program. It is highly recommended for its user-friendly interface and extensive range of useful screen selection choices.
To begin, go to the Finviz homepage (finviz.com) and select “Screener” from the toolbar at the top. Then, click on “All” on the Filters bar to view the available screening filters.
Finding Stocks with Sell Recommendations
Since the U.S. economy is currently the strongest, it is wise to limit your selection to U.S. based stocks. Use the Country filter and specify “USA” to achieve this.
Next, you want to find stocks that most stock analysts are advising selling. Finviz simplifies this by categorizing analyst recommendations into “strong buy,” “buy,” “hold,” “sell,” and “strong sell.” For our purposes, “hold,” “sell,” and “strong sell” all translate to “sell.” So, use the Analyst Recommendation filter and specify “hold or worse” to identify stocks that analysts are advising selling.
Focusing on High Earnings Growth
Earnings per share (EPS) growth is a key factor that drives share prices. Therefore, you should look for stocks with strong earnings growth numbers. Surprisingly, many stocks with forecasted strong earnings growth are rated as sells by analysts. Specify “Over 30%” for EPS Growth This Year and “Over 25%” for EPS Growth Next Year to limit your list to the fastest EPS growers.
Choosing Profitable Stocks
Profitable companies tend to outperform those that are not. Use the Return on Equity filter, which compares Net Income to Shareholders Equity, and specify “Over +5%” to select profitable stocks.
Following Institutional Buyers
Institutional buyers, such as mutual funds and hedge funds, have access to information that ordinary investors do not. Their buying activity can be a good indicator of a stock’s potential. Specify “Positive” for Institutional Transactions to identify stocks that these influential players have recently been buying.
Avoiding Cheap Stocks
Contrary to popular belief, cheap stocks tend to underperform. Specify “Over $10” using the Price filter to rule out the cheapest plays.
Focusing on Uptrending Stocks
Stock prices tend to move in trends. Use the Performance filter to specify “Month Up” and the Performance 2 filter to specify “Week Up” to limit your list to uptrending stocks.
Four Contrarian Stock Picks
By following this screening process, I have identified four stocks that meet the criteria outlined above:
- Comstock Resources (ticker: CRK)
- Dream Finders Homes (DPH)
- Fluor Corporation (FLR)
- Midwest Holding (MDWT)
Please note that these are just suggestions and it is important to conduct your own due diligence. The more you know about your stocks, the better your results will be. Happy investing!
Analyst comment
Positive news: The article provides a contrarian strategy for building a winning stock portfolio, which has been proven to outperform the S&P 500.
As an analyst, the market is expected to see increased interest in stocks advised as sells by stock analysts, particularly those with strong earnings growth and profitability, as well as institutional buying activity. Overall, this strategy may lead to positive market performance in the coming months.
