It can pay to be a contrarian.
Especially when things escalate quickly, to borrow from Ron Burgundy in Anchorman after a ferocious battle with rival news teams.
The seven participants in our stock picking challenge of 2022 were armed for the daily skirmishes of the stock market.
They conducted deep research into various companies, considered the competitive landscape in which they operate, crunched the numbers to determine growth at a reasonable price, and weighed the probabilities of a healthy return.
Alas, not much of that mattered because very few anticipated what transpired in 2022.
In a year when no interest rate hikes were expected, years of easy fiscal and monetary conditions combined with pandemic-induced supply chain bottlenecks led to the highest inflation in 40 years.
Throw in the war in Ukraine and the bursting of an unprecedented amount of concurrent asset bubbles and you’ve got the makings of underperformance.
Six of our stock pickers, made up of portfolio managers, analysts and investment newsletter publishers, saw their ideas lower on the year by an average of 30 per cent. (As of December 19.)
But Benj Gallander managed a gain of 40 per cent with his selection of McCoy Global, the more than 100-year-old Canadian company that has evolved into a digital solutions provider for the oil and gas industry.
Here’s what the President of the Contra the Heard Investment Newsletter said about his stock pick nearly a year ago:
McCoy Global has rebounded with oil and gas prices. After revenues dropped 35% early in the pandemic, they jumped 62% in the most recent quarter year-over-year.
The kicker is that the management is looking at “strategic alternatives”, meaning that a sale at a price premium is a reasonable possibility.
Gallander has a contrarian way of picking companies in which to invest and recommend to his subscribers.
In a nutshell, they have to have a history of at least 10 years.
Their stock prices have to have fallen by at least two-thirds from their peak.
And from there, Gallander analyzes financial metrics, turnaround potential and possible catalysts, and/or special situation opportunities.
McCoy didn’t sell itself but it did report impressive growth in its third quarter as order intake rose to $23.5 million, a 106 per cent increase from a year earlier.
This as customers increased demand for some of its new products.
McCoy says its order backlog is at the highest level since 2015.
The company had a modest profit in the quarter on revenue of $12.3 million.
As for our other stock pickers, they’re licking their wounds but most of them are game for another shot at in 2023.
Because next year couldn’t possibly be as difficult to navigate than this year…could it?
Look for our 2023 Stock Picking Challenge in our January 7, 2023 newsletter.
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