When Conan the Contrarian speaks, people listen
Marc Kennis, December 21, 2020
Monday 21 December 2020
If you’ve been around the investment scene for a while you would have heard the term ‘contrarian’. A contrarian investor is one who likes stocks that everyone else seems to hate. They run ‘contrary’ to the rest of the market. They’re the ones who bought stocks generally on or about 23 March 2020. They bought AMP a few months ago, Aristocrat Leisure in 2010, CSL in 2003, the gold miners in 2001, BHP in 1998, and Burns Philp in 1997. And so on. There’s always some stray mutt of a stock out there for the contrarians to take home and show some love to.
In our ‘Friday Beers with Marc and Stuart’ show, which we publish on the Stocks Down Under website under Insights videos and on the Pitt Street Research website every second Friday, we have an occasional segment called ‘Conan the Contrarian’, where we discuss a contrarian stock idea that we have. We named Conan the Contrarian after the fictional sword-and-sorcery Barbarian from the 1930s pulp magazines that moviegoers might remember from the 1982 film starring Arnold Schwarzenegger. Conan has made a number of contrarian calls on Friday Beers over the last year or so.
Conan buys his swords and pays for them later
We first introduced Conan the Contrarian in the 1 November 2019 edition where he discussed Costa Group (ASX: CGC). This Melbourne-based fruit and vegetable wholesaler was $2.70 at the time. Conan argued that when the drought broke in Australia, the good times would resume for Costa. Well, the drought broke, and as at 17 December 2020 Costa shares were at $4.05.
Conan’s next big call was AfterPay (AST: APT) on 15 November 2019. Conan liked AfterPay at $32.91 because the growth that this Buy Now Pay Later company was experiencing more than paid for the multiple it was trading at. AfterPay was $120.31 on 17 December 2020. Enough said.
Conan is not always a contrarian bull. With Avita Therapeutics (ASX:AVH) on 13 December 2019 he was negative. Avita Therapeutics, then called Avita Medical, had quintupled based on gaining approvals for its ‘spray-on’ skin technology for the treatment of burns. Conan decided that the technology was good, but the price was too high. Avita was $11.40 when he made that call. It was $4.85 on 17 December.
Sometimes Conan just gets his timing wrong.
It takes the kind of guts Conan is renowned for in the pulps to stick with some calls. Take New Century Resources (ASX:NCZ) on 14 February 2020. Just before the Corona Crash, Conan was bullish on zinc and on this particular zinc producer due to the challenges with developing new zinc mines. New Century was 20.5 cents when Conan made his call. He had egg on his face at the bottom of the Corona Crash when New Century got to 5 cents, but at the 25-cent level of 17 December 2020 he doesn’t look too bad.
Myer (ASX:MYR) on 9 October 2020 is a Conan call that is already delivering. Conan was quite bullish on Myer and its 60 department stores around Australia when the stock was 21 cents. Conan liked the loyal demographic that regularly shops at Myer and the quality of merchandising as well as the tight cost management. The stock was 28.5 cents on 17 December.
A recent Conan pronouncement concerns Treasury Wine Estates (ASX: TWE) on 4 December 2020. Conan was not concerned when China started to place heavy tariffs on Australian wine and figured that Treasury Wines would be able to find new markets. Treasury Wine Estates was $9.08 on 9 December. By 17 December the stock had made it back to $9.59.
The great thing about having Conan the Contrarian around the Stocks Down Under team is that there’s always a stock somewhere that has gone to hell in a handbasket or has risen so high that it’s not just discounting the future but the afterlife as well.
Stay tuned for more research from Conan in Friday Beers in 2021.
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