Buy the dip in these contrarian stocks.
Historically, investors tend to be most bullish at or near a market top and most bearish at or near a bottom. Rather than the highest-flying stocks, sometimes the best stocks to buy are the ones that everyone else is selling. Wall Street legend Warren Buffett once said wise investors are “fearful when others are greedy and greedy when others are fearful.” Investors who want to follow Buffett’s advice should be greedy in buying stocks that other investors are selling. Here are seven contrarian stocks to buy that are down at least 40% in the last year, according to Morningstar analysts.
Exxon Mobil Corp. (ticker: XOM)
Travel restrictions and economic shutdowns crushed oil demand in 2020, sending many oil and gas stocks to multiyear lows. Shares of U.S. oil major Exxon Mobil hit their lowest levels in more than 15 years in March, but analyst Allen Good says the combination of Exxon’s 8% dividend and its long-term free cash flow growth outlook make the stock a perfect contrarian choice to buy on the weakness. Good says Exxon is the highest-quality integrated oil major based on its operations and its assets. Morningstar has a “buy” rating and $74 fair value estimate for XOM stock.
Wells Fargo & Co. (WFC)
U.S. megabank Wells Fargo in the last few years has had a slew of problems, from its fraudulent account scandal in 2016 to its 2018 Federal Reserve-implemented asset cap. Wells Fargo’s problems have followed it into 2020. The bank recently cut its quarterly dividend from 51 cents to 10 cents in response to new Fed regulations tying dividend caps to banks’ net income. Analyst Eric Compton says Wells Fargo has significant upside for contrarian investors willing to ride out the bank’s difficulties. Morningstar has a “buy” rating and $50 fair value estimate for WFC stock.
Boeing Co. (BA)
Mechanical issues and a subsequent grounding of the 737 Max blindsided Boeing investors in 2019, and the pandemic’s unexpected blow to the airline industry in 2020 has crippled demand for planes. In fact, in the first half of 2019, Boeing secured orders for 21 planes. In the first half of 2020, Boeing generated a net negative 323 plane orders as customers aggressively cut back on spending. However, analyst Burkett Huey says Boeing should quickly return to positive free cash flow once the 737 Max is recertified. Morningstar has a “buy” rating and $281 fair value estimate for BA stock.
Raytheon Technologies Corp. (RTX)
Aerospace and defense giant Raytheon Technologies was created from the April merger of Raytheon and United Technologies. Huey says the company’s defense business is helping to offset near-term commercial aerospace headwinds created by the crash in global travel spending. Fortunately, Raytheon’s jet engine manufacturing unit Pratt & Whitney has no exposure to the 737 Max in the near term. In the long term, Huey says the U.S. defense budget is tied to both national wealth and geopolitical tensions, which is why defense spending boomed in 2018 and 2019. Morningstar has a “buy” rating and $79 price target for RTX stock.
American International Group (AIG)
American International Group is a global multiline insurance company specializing in commercial and personal lines of property and casualty insurance. Analyst Brett Horn says the health crisis has created both risks and opportunities for property and casualty insurers. Horn says the group should effectively absorb the impact of a potential spike in claims, and the crisis could even pave the way for the emergence of a hard pricing environment in the coming years. He says the industry benefited from a similar environment following the 9/11 attacks. Morningstar has a “buy” rating and $59 fair value estimate for AIG stock.
EOG Resources (EOG)
EOG Resources is one of the largest U.S. oil and gas exploration and production companies. Analyst Dave Meats says EOG’s large portfolio of high-quality properties in the top-tier regions of various basins has proved invaluable in an extremely difficult environment in 2020. For years, EOG has focused on “premium” drilling locations that must yield at least a 30% return at $40-per-barrel crude prices. While that may have seemed overly cautious in the past, this conservative approach has helped mitigate risk in 2020. Morningstar has a “buy” rating and $64 price target for EOG stock.
Simon Property Group (SPG)
When it comes to contrarian investing, a shopping mall real estate investment trust may be as contrarian as it gets. Given the complete shutdown of many malls and retail stores in 2020, it’s understandable that Simon Property shares are down about 58% year to date. However, even after recently cutting its payout by 38%, the REIT still pays an attractive yield of more than 8%. Analyst Kevin Brown says Simon’s Class A malls will eventually recover from shutdowns, and much of Simon’s revenue is protected via long-term leases. Morningstar has a “buy” rating and $154 fair value estimate for SPG stock.
Contrarian stocks to buy:
— Exxon Mobil Corp. (XOM)
— Wells Fargo & Co. (WFC)
— Boeing Co. (BA)
— Raytheon Technologies Corp. (RTX)
— American International Group (AIG)
— EOG Resources (EOG)
— Simon Property Group (SPG)
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Update 07/24/20: This article was published previously and has been updated with new information.