Contrarian Ideas: Mom and Pop Investors Heading for Exit?

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Here's why contrarian investments may be the way to approach the market: Once upon a time, a successful businessman and political figure by the name of Joseph Patrick Kennedy, father of U.S. President John F. Kennedy, went to get his shoes shined.

The shoeshine boy, perhaps feeling a need to impress, graced Kennedy with some stock tips. Kennedy, far from impressed, had an insight: If everybody, including the shoeshine boys, were confidently investing in the stock market then it was time to get out.

This was right before the Stock Market Crash of 1929, the most devastating stock market crash in U.S. history, and the beginning of the Great Depression. His contrarian decision -- the decision to go against the popular trend -- helped him survive the crash.

Present-day contrarian
Fast forward some 90 years and take a look at the market today. Investors are fleeing in droves as stocks take beatings from negative headline news at home and abroad. Investor confidence is shot. In fact, the idea of "mom and pop investors" is just about dead.

Contrarian alert: If every one starts moving away from stocks, it means that there are potentially more buyers in a few years time. Prices will rise with the influx. Get in now, and you may be rewarded.

Is the reasoning of too few investors any different than Kennedy's radical decision to take his money and run because there were too many?

Business section: Investing ideas
So, we're wondering, are there any contrarian ideas being targeted by bearish investors?

For ideas, we collected data on short-seller trends, and identified a list of stocks that have seen a sharp increase in shares shorted over the last month (i.e., an increase in bets that these stocks will decline).

This is significant, especially when you consider that short-sellers tend to be more sophisticated investors (because of the fact that they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying close attention.

To further refine the quality of our list, we collected data on institutional money flows, and identified the short targets that have seen significant institutional selling during the current quarter.

Big money managers have extensive resources to analyze investing ideas. So if they're dumping a certain stock, it's worth paying close attention.

Sophisticated investors, like hedge fund managers and short-sellers, think these stocks are in trouble -- do you agree? Or is this excessive pessimism a contrarian buy signal?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. Netspend Holdings (NAS: NTSP) : Provides general-purpose reloadable prepaid debit cards (GPR cards) and related alternative financial services to under banked consumers in the United States. During the current quarter, institutional investors changed net holdings by -2.8M shares, which is equivalent to 36.70% of the company's float of 7.63M shares. Shares shorted have increased from 3.75M to 3.99M over the last month, an increase which represents about 3.15% of the company's float of 7.63M shares.

2. The Talbots (NYS: TLB) : Operates as a specialty retailer and direct marketer of women's apparel, accessories, and shoes in the United States and Canada. During the current quarter, institutional investors changed net holdings by -17.2M shares, which is equivalent to 30.16% of the company's float of 57.02M shares. Shares shorted have increased from 16.11M to 17.40M over the last month, an increase which represents about 2.26% of the company's float of 57.02M shares.

3. Central European Distribution (NAS: CEDC) : Produces, imports, and distributes alcoholic beverages in Poland, Hungary, and the Russian Federation. During the current quarter, institutional investors changed net holdings by -10.9M shares, which is equivalent to 19.68% of the company's float of 55.38M shares. Shares shorted have increased from 11.95M to 13.13M over the last month, an increase which represents about 2.13% of the company's float of 55.38M shares.

4. Resolute Energy (NYS: REN) : Engages in the acquisition, exploration, exploitation, and development of oil and gas properties primarily in onshore properties in the United States. During the current quarter, institutional investors changed net holdings by -4.9M shares, which is equivalent to 17.77% of the company's float of 27.57M shares. Shares shorted have increased from 5.96M to 6.48M over the last month, an increase which represents about 1.89% of the company's float of 27.57M shares.

5. Boise (NYS: BZ) : Engages in the manufacture and sale of paper and packaging products. During the current quarter, institutional investors changed net holdings by -14.3M shares, which is equivalent to 17.67% of the company's float of 80.95M shares. Shares shorted have increased from 4.81M to 5.62M over the last month, an increase which represents about 1.% of the company's float of 80.95M shares.

6. VanceInfo Technologies (NYS: VIT) : Engages in the provision of information technology (IT) services. During the current quarter, institutional investors changed net holdings by -3.7M shares, which is equivalent to 17.59% of the company's float of 21.04M shares. Shares shorted have increased from 9.75M to 11.45M over the last month, an increase which represents about 8.08% of the company's float of 21.04M shares.

7. Gentiva Health Services (NAS: GTIV) : Provides home health services and hospice care in the United States. During the current quarter, institutional investors changed net holdings by -5.0M shares, which is equivalent to 17.39% of the company's float of 28.76M shares. Shares shorted have increased from 2.40M to 3.14M over the last month, an increase which represents about 2.57% of the company's float of 28.76M shares.

8. Amkor Technology (NAS: AMKR) : Provides outsourced semiconductor packaging and test services in the United States and internationally. During the current quarter, institutional investors changed net holdings by -13.3M shares, which is equivalent to 16.06% of the company's float of 82.84M shares. Shares shorted have increased from 13.09M to 13.99M over the last month, an increase which represents about 1.09% of the company's float of 82.84M shares.

9. CapitalSource (NYS: CSE) : Provides various financial products to small and medium-sized businesses in the United States. During the current quarter, institutional investors changed net holdings by -32.2M shares, which is equivalent to 13.49% of the company's float of 238.67M shares. Shares shorted have increased from 8.10M to 10.81M over the last month, an increase which represents about 1.14% of the company's float of 238.67M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance, institutional data from Fidelity.

At the time this article was published The Motley Fool owns shares of CapitalSource. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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