Many stocks have hit new highs this year, but there are always late bloomers. We asked Benj Gallander, co-editor of the Contra the Heard investment letter, how he finds out-of-favour plays. His model portfolio has returned an annual average of 18 per cent to the end of 2013.
Can you briefly describe your contrarian strategy?
We look for beaten-up stocks of once-successful companies that could return to their former glory. The keys are little or no debt and strong management. We buy stocks late in the year to get better bargains from tax-loss selling by other investors. I'm looking for a minimum return of 100 per cent, and I will normally sell half or more of my position when a stock hits my price target.
What sectors do you like?
I still like U.S. financials, which make up about 25 per cent of the portfolio. In 2009, I bought U.S. banks that I thought would recover from the financial crisis, and eventually pay or increase their dividends. Bank of America, Fidelity Southern and Bank of Commerce Holdings are still in my portfolio, while First United was purchased this year.
Why do you hang on to BlackBerry?
Its new CEO, John Chen, has a pedigree as a turnaround artist. Yes, the company's revenues have been trashed, but they're still in the billions. It also has a lot of cash. The Apple-IBM alliance to target BlackBerry's key business market makes a turnaround harder, but I think Chen will succeed. My initial sell target is $17.49 a share.