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written by reader What stock is this about?

By mcgrau, September 15, 2016

Hi All,
Just wondering if anyone has insight into what stock is being promoted here and what people think?

Dear Mauldin Reader,

Jared Dillian here. If you have read The 10th Man, my free e-letter, you know that I’m something of a contrarian. I look to the most out-of-favor sectors for profit opportunities, and I recently found a big contrarian play that’s just starting to be discovered by the investment pros.

A word of warning: this investment is taking contrarianism to the extreme and may not be for everyone.

My track record is pretty good, though—the Street Freak portfolio is currently up 23.9% YTD, compared to 5.6% for the S&P 500. Definitely nothing to scoff at, and the subscribers are happy.

Needless to say, we haven’t gotten those gains by following the investing herd.

So this month, my team and I are going to do something really gutsy: We’re going to invest in one of the worst-looking stocks we can find… a company that apparently has nothing going for it. It’s not trendy, it’s in one of the most beaten-down sectors, it doesn’t pay any dividends, and volatility is through the roof.

Am I crazy? How are we going to make money from it?

Well, hear me out for a second and then decide if you still think I’m mad.

When I notice a mega-trend in the markets… and I don’t mean one of those tiny, budding trends that you can jump onto and ride to the top… I’m talking about a trend that’s already so huge, it’s sweeping across Mainstream Investing Land like a tsunami…

When I see that kind of all-encompassing trend, to me, that is a clear contrarian indicator. Which in plain English means: Get out and do the exact opposite of what everyone else is doing.

Right now, there is such a trend, and it’s one of the biggest I’ve ever seen. It’s so ubiquitous, you probably wouldn’t even recognize it as a trend—it’s just something “everyone does.”

Something you “HAVE to do” if you’re an investor.

That’s how powerful and completely ingrained this trend—I’m tempted to call it a fad—has become in the minds of investors. It is perpetuated by several myths:

Myth #1: Any sane investor MUST do this if he wants his portfolio to survive.

Myth #2: After the Crash of 2008, this is the right way (the ONLY way) to make money in the markets.

Myth #3: If you apply this strategy, it’s almost GUARANTEED that you will come out a winner.

Note the words in all caps. Whenever you see dogmatic rules like this, take it as a red flag.

But it’s not just individual investors, i.e., “the man on the street,” who have been duped. Some of the smartest and most famous Wall Street guys I know—and as a former Lehman trader, I know quite a few—are buying into it, promoting these myths to the masses.

By now, this mega-trend has become so overcrowded that I’m convinced it is close to its tipping point.

You know how, at the height of a bull market, everyone buys into an asset, and then on the way down there’s no one left to sell to? That’s what I see developing here.

Only that we’re not talking about one asset, but an entire asset class that’s at risk. And still people are buying afflicted companies like Campbell’s Soup (CPB), not realizing that they’re being sold the equivalent of that bridge in Brooklyn.

So here’s my contrarian play:

The “anti-trend” company I am recommending this month has been down on its luck. It’s in a sector that hasn’t gotten any love from investors for years now. (In December 2015, prices hit a 14-year low.) But I have been keeping a close eye on the sector… and recently noticed the first signs of new life.

The latest data from a large government agency monitoring the sector shows that the commodity this company produces is on an upward trajectory again… and there’s a good chance it could end up at the top of the sector.

That’s a really big deal, so there’s no doubt in my mind that the love from investors will return sooner rather than later. It looks like the smart money is just starting to jump in.

When I spoke with my team about this month’s pick, I told them I wanted to find the worst-looking stock possible.

I’m not kidding.

You see, this mega-trend I’ve been talking about has to do with perceived safety, so I was going to make our stock pick one that the general consensus perceives as “unsafe.”

This is what we found:

Our pick is a leader in its sector. Since 2013, the company has shifted its focus away from just one product and toward greater versatility and low-cost production. Its four major assets have delivered 35% year-over-year production growth, which is pretty amazing for the rock-bottom state the overall sector has been in.

The company’s debt is in line with the industry average, and there is no maturing debt until 2019… plenty of time for the sector to get back on its feet.

My team and I went through the data, and we are convinced that the company is undervalued. Which doesn’t mean it’s a safe bet, but remember, the point of a contrarian play is to do the opposite of what is fashionable.

If we do get the stock market correction I’ve been anticipating (and it looks increasingly likely), then this stock will vastly outperform while the disciples of said mega-trend take a hit to their portfolios.

Sometimes the worst companies can be the best companies, in the worst times.

I invite you to join us today as a Street Freak subscriber and see how good it can feel to be a contrarian. If you subscribe right now, you’ll get the hot-off-the-press September issue that we published yesterday.

Aside from learning all about the treacherous mega-trend I’ve been talking about—and that you most likely believe in as true—and the “anti-trend” company we recommend, you’ll also read in this issue:

Down the Jackson Hole: Will the Fed ever hike rates? Will the Bank of Canada lower rates? I’ll tell you what I think that means for the US dollar and the USD/CAD trade I like so much.

The Dumbest Thing on Wall Street: Why the latest deal a major US bank signed in Manhattan is almost sure to go bust.

WTF: If you can’t beat them, tax them. Read which successful grassroots company the state of Massachusetts is trying to tax to death.

Complete Portfolio Updates: Find out how our various portfolio holdings are doing and see our Buy recommendations for new subscribers.

You don’t risk anything by subscribing, due to the Mauldin Economics nifty 100% money-back guarantee that lets you play with the newsletter for 90 days before it gets serious.

As an extra incentive to try Street Freak today, we’ll even give you a special discount. Instead of the regular $299 per year, you’ll pay only $199—that’s more than 30% off.

If you don’t like the newsletter, no harm, no foul—just cancel for a full refund and walk away. We don’t get too many cancellations, though; our subscribers are pretty happy with the way things are going.

Click here to sign up now and be a part of our “anti-trend investing” family.

All the best,

Jared Dillian
Jared Dillian
Editor, Street Freak
Mauldin Economics

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.



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Travis Johnson, Stock Gumshoe

He’s talking about natural gas, it’s pretty clear — but haven’t gotten a chance to dig into those details and ID the stock.

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👍 15112
6 years ago

Commodity like RIO or BHP or FCX?

6 years ago

Nat Gas seems right based on 14-year lows but haven’t most nat gas companies actually had fairly significant rallies in 2016 already? I can think of more ugly sectors than that!

6 years ago

Some natural gas stacks have had an uptick, but are still way underpriced. Take AltaGas, for instance, which pays 6% at the current price of $33CDN, steady as a rock. Doesn’t matter what happens to the price of gas, Alta has contracts as far out as anyone can see.

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