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Many investors are looking for contrarian stock ideas on the ASX. After all, Warren Buffett said to be greedy when others are fearful, and investors certainly are fearful now.
Amidst all this market volatility, it could be a great time for contrarian investors to find a bargain. There are plenty of good companies that have been sold off unreasonably, just because of market conditions, or because of unreasonable fears with these stocks. Nonetheless, there is the risk investors catch a falling knife in searching for contrarian ideas. We’ve taken a hard look at the ASX, and thought we would share our top 4 contrarian ideas right now.
4 contrarian stock ideas on the ASX
The ASX’s largest biotech stock just might be the best contrarian idea right now. We’d be lying if we said things were going perfectly for it right now, although we think investors have gone too far in selling it off.
Investors have some legitimate concerns such as that CSL paid too much for Vifor and that it will have lower margins in its blood collection business. And as a company that barely put a foot wrong in the last decade, perhaps investors leaving weren’t leaving because they thought there were better opportunities.
It is expecting a post-tax profit (excluding amortisation and impairments) of US$2.9-3bn for FY24. Yes, this is behind previous guidance it has given, but Consensus estimates (among 18 analysts) expect 13% revenue growth, 19% EBITDA growth and 21% EPS growth in FY24. Looking ahead to FY25, 9% revenue growth, 15% EBITDA growth and 18% EPS growth. If this company can achieve that, there’s potential for a re-rate.
Not all businesses are immune to inflation, but all businesses in Australia that do business overseas need a money transfer solution. OFX is one company that helps with this task, and it doesn’t just help Australian companies but it facilitates transfers between 170 countries.
Consensus estimates expect 8% revenue growth and 2% EBITDA growth for FY24. Yes, not the most by any means, but the mean target price is $2.39, a 50%+ premium to the current share price.
PointsBet has had a very heavy millstone around its neck for many years, in the form of its loss making US business. But now, it has been removed and it will receive US$225m for it. The capital return will gradually occur across FY24.
And investors are left with strong Australian and Canadian businesses that are proving resilient to inflation and cost of living pressures. In 1Q24, its Gross Win Margin rose from 11.9% to 12.6% year on year and its Net Win Margin increased from 7.8% to 9.3%.
Chalice Mining (ASX:CHN)
We are not putting this stock on our list of contrarian because we are in denial about its capital requirements or the lengthy timeline to get this project into production.
We think this company can recover over the next 12 months as commodity prices stabilise, and takeover interest materialises. Yes, we think $700m for a deposit like Julimar would be a bargain, even allowing for a 50% control premium would still represent good value.
Julimar, or specifically the Gonneville prospect at the project, was the largest nickel sulphide discovery anywhere in the world in 2 decades and the largest PGE (Platinum Group elements) discovery in Australian history. And keep in mind that was the maiden Resource 2 years ago!
As of July 2023, it has a resource of 560Mt @ 0.54% nickel or ~1.7g/t palladium equivalent. 55% of this is Measured and Indicated with the balance Inferred. This equates to 16Moz of 3E (Palladium, Platinum and Gold combined), 860kt nickel, 520kt copper and 83kt of cobalt. This is equivalent to 3Mt of nickel equivalent or 30Moz of palladium equivalent.
If there’s another deposit like this, let’s hear about it.
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