Top “Contrarian Bonanza” Picks from the Million Dollar Contrarian Portfolio

Latest "against the grain" picks teased by Martin Weiss and Tom Essaye

By Travis Johnson, Stock Gumshoe, January 12, 2012

It’s been quite a while since I wrote about a Martin Weiss teaser — he publishes a number of letters at Weiss Research, and this is is “contrarian portfolio” letter that follows along as an analyst (Tom Essaye in this case) invests Weiss’ own million dollars. They haven’t been teasing many specific picks for this or the similar letters in recent years, at least not that I’ve noticed, but they appear to be back on board the teasing train now.

The basic pitch of the ad (they don’t call it an ad, they say it’s an online investment conference) is that we’re going to face the same troubling and volatile market in 2012 as we did in 2011 — and that investors will continue to be hoodwinked by Wall Street into buying high and selling low, chasing after elusive trends and being overly reactive (that’s my take on what they say, at least).

And Essaye, who’s apparently making the picks, tells us that he’s got a handful of contrarian ideas that will help you go against the crowd, buy companies that are undervalued relative to their peers or thought of too pessimistically, and profit when they come back to a “normal” valuation. Which is basically page one of the value investor’s handbook: “buy what the crowd is selling.”

He’s apparently planning to buy some broad inverse index ETFs as a core position to bet against the market, but he’s also about to …

“… begin buying the stock of high-quality companies that have been unfairly beaten down by the Wall Street crowd.”

And what are those high-quality beaten-down companies? Well, that’s where the mighty, mighty power of the Thinkolator comes into play — he won’t tell us, but he does provide enough clues to entice … let’s look at ’em one at a time and see how many we can get through today:

“Contrarian Bonanza #1 is a find of epic proportions.

“This consumer products company markets a super-popular product that has taken the world by storm. But late last year, its earnings were slightly less than investors expected — and the crowd sold the stock as if the company was going out of business.

“In a single day, this stock plunged 40%. Today, it sells at 13 times earnings — nearly 55% lower than its average competitor.

“But that’s in our favor. Because when you look deeper, the picture changes radically.

“For one thing, the company’s total revenues grew a staggering 31% in the first nine months of last year — and analysts expect that growth to be reflected in the company’s fourth quarter as well.

“Profitability is also improving. Net income was up a whopping 20% in the most recent quarter.

“And the company has $220 million in cash and ZERO debt!

“In fact, if this company’s stock was to catch up to those of its peers, it would have to surge nearly 40%.

“But this Contrarian Bonanza could make us much, MUCH more than that! Consider this …

“A similar situation occurred in this very same stock back in 2010: The stock plunged 17% in one trading day and 27% in three days.

“At the bottom, contrarians who bought when the crowd was selling could have snapped up all they wanted for just $10.30 per share.

“Within three months, the stock had spiked to $19 — enough to nearly DOUBLE contrarian investors’ money.

“Plus, within one year, it hit $32.47, spinning off a 215% return — and I see the opportunity for us to go for the same kinds of gains!”

Toss all that into the Thinkolator, and we learn that this is, believe it or not, Crocs (CROX).

I know, they’re still in business — really! I had written these guys off for dead back in 2009, when everyone and his brother was making (even cheaper) knockoffs of the little rubber fad sandals that are Crocs’ claim to fame, and they had borrowed lots of money and probably expanded too quickly … but they fought off the competition, rebuilt their balance sheet, and they’re still around and growing, and are hitting about a billion dollars in sales, far higher than when they initially burst on the scene as a stock market momentum darling in 2006 and 2007. Go figure.

So they’ve apparently fixed some of the problems in the business that almost put them out of business two years ago, they’ve become a growth company again, they have new styles and new fashion attention and celebrity connections, and I guess they’re not just for kids and gardeners. They did post 20% revenue growth last quarter, and they do have $220 million in cash, and those other clues about their past stock performance are also matches (though it would have been tough to pick the right moves in trading around those big volatile swings, I assume).

Unfortunately for Crocs, they issued a profit warning late last year, essentially throwing cold water on the analysts who were foreseeing a return to increasing growth rates. And the stock got cut almost in half, so that’s the “single day” decline from the tease — that was when they preannounced some bad news about their third and fourth quarter sales numbers, third quarter came in with earnings about 25% below prior expectations and the fourth quarter revenue number is lower than the third quarter and only a 15% or so sales jump from the fourth quarter of 2010. So still growing, but not as fast as analysts had projected.

Which is why the shares trade at a discount to their relatively small number of “peer” companies — there aren’t that many fad fashion footwear stocks to compare them too, but Deckers Outdoor (DECK) is the obvious choice (they brought us Ugg Boots, which have also had a far, far longer 15 minutes of fame than I expected — I clearly have to consult with Mrs. Gumshoe about all matters fashion-related, because I plain don’t get it most of the time). And yes, CROX would have to get a bump of about 50% to be valued similarly to DECK, and they do have some comparable numbers otherwise — similar margins, etc.

Don’t know if that will happen, of course — they guided to expect that 2011 will hit a billion in sales, which means they’re fairly close to where analysts expect them to be (with those lowered numbers) for the fourth quarter, and we’ll see if profitability is also in line. They are still alive and growing, they’re even opening up some of their own branded stores in a few malls as a test, so perhaps they’ll continue to please consumers and keep growing. I’m a bit skeptical, but the market is pretty clearly skeptical too at this point, so yes, you can pencil this in as a “contrarian” investment — of course, betting against the crowd doesn’t always work.

CROX is now trading at a forward estimated PE of about 12, and they’re expected by analysts to keep their earnings growth in the high teens for several years — so if the analysts are right, which is a big “if” for any stock but particularly so for one with consumer fashions and fads as a driving force, then they do look pretty cheap, that’s a Price/Earnings/Growth (PEG) ratio of 0.6, and lots of folks still adhere to Peter Lynch’s guidance that a PEG under 1 means it’s at least worth a look. Their balance sheet problems are behind them, though they did just sign up for a new credit facility so they are apparently able to borrow for expansion when needed, and they do have quite a bit of cash … but they don’t pay a dividend or anything, so you’re not getting your grubby little mitts on it anytime soon.

Sound like your kind of contrarian pick? I’d have to hold my nose a bit to get into CROX because of my memories of their collapse a few years ago, but that’s often just the kind of thing that should make you think you’re really being contrarian. If you’ve got a thought on CROX or any of their competitors — or, for that matter, on Martin Weiss and the nature of contrarian-ness — please shout it out with a comment below. I’ve blown all this time digging into CROX, so we’ll catch up with the rest of those contrarian ideas in the days to come.

And if you’ve had recent experience with the Million-Dollar Contrarian Portfolio, please share your thoughts in a review by clicking here — we’ve had hundreds of (very critical) reviews of this letter, but they reflect a different analyst’s work during the crash and rebound years, and perhaps a different letter than the one they’re now pitching.


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18 Comments on "Top “Contrarian Bonanza” Picks from the Million Dollar Contrarian Portfolio"

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james
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james
January 12, 2012 3:12 pm

http://www.youtube.com/watch?v=CtnSzTzpAI4

If you have lost money, this may be worth checking out

George
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George
January 12, 2012 3:23 pm
Travis–blessings upon you for un-locking the latest Weiss malarkey! Many desperate investors will pluck down $1500 for 1 -year & $2500 for 2 year subscriptions to fatten the Weiss coffers. Please keep sending the other 6 so-called fab beaten down stock teasers to us— otherwise someone will just have to pony up the money & get it back with their 30-day return guarantee. After all the money seduced by the Weiss gang over the years, I don’t consider it theft to leak their “teasers.” Their idea of seeking contrarian bets is realistic but their prices are ridiculous. But their advertising… Read more »
Buddy
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Buddy
January 12, 2012 3:32 pm

I signed up for the MDCP about a year ago. SOunded great. However, the first few picks did not seem to be suitable, so I took advantage of their guarantee and bailed out. Evidently that was a good decision.

At any rate, I still have confidence in some of Weiss’s team. The timing isn’t too good, but whose is, nowadays, with the Euo and sovereign debt brinkmanship racking up enough problems to create a really “rock” strewn trail?

crapsmaster
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crapsmaster
January 12, 2012 4:20 pm

Weiss is like the rest, but they claim to be the best (lol) I was just renewed to one of their subscribtions that I didn’t even know I subscribed to, the phone call to cancel was like dealing with a car salesman..I’ll stick with Gumshoe forever and figure things out myself. Thanks Travis, you are amazeing !!!

Kerfuffle
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Kerfuffle
January 12, 2012 4:23 pm

The parade continues..
Claus V, Jack C, Kevin K, and now Tom E. beside the regulars at Weiss. I have a lot of respect for Martin W and what he has accomplished, but have a problem with price and timing of their recos and therefore lack of confidence. Even some disagreement between the Weiss regulars. That’s to be expected of course, but which do you believe?

Gregory
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Gregory
January 12, 2012 4:23 pm

I had been had by Mr. Weiss and his contrarian thing during their first go at it. A very respectable German banker Claus Vogt was the stock picker, and month after month he was explaining how contrarian and professional he was. The portfolio quickly went down and never went up, even now. I figure Mr. Weiss more than made up his losses by the subscriptions! Now he is peddling the same trick again but with a “Tom” instead of “Claus.” Hold your noses with both hans and stay away.

rmuthup
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rmuthup
January 12, 2012 5:03 pm

I subscribed to Weiss a few months ago. I have to say, that I am getting tired of their blizzard of bulletins asking one to subscribe to ‘this’ or ‘that’ special offer on an annoyingly regular basis.
My main complaint is that they never mention their picks that lost investors money, and once recommended picks are discarded (without any explanation).
I will not renew their subscription again.

Bob Berke
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Bob Berke
January 12, 2012 5:26 pm

I’m not high on Weiss’s picks, but I think his bank and insurance company ratings are worth looking at.

michael wolfe
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michael wolfe
January 12, 2012 6:08 pm

Thanks! I actually listened to the spiel, but the whole time I was hoping you’d scoop it for me!…thanks again!

Tim
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Tim
January 12, 2012 6:30 pm

Why are so many of the Weiss contributors located in hard to acces legislative countries?

Michael
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Michael
January 12, 2012 9:11 pm

I did enjoy the web cast and thought Tom had a solid plan. I didn’t have any previous exposure to any Weiss newsletters. The other company he mentioned in Thailand that was sitting on billions in cash sounded interesting.

Steve
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Steve
January 13, 2012 3:57 pm
Here are the 12 stock picks from Weiss’ 2011 Contrarian Portfolio : I have tracked these stocks since last year, but have not purchased any. 8 of the 12 performed very nicely. The 8 winners were (TSCO DLTR SXL MKC MMS CNL CHD BCPC) The 4 losers were (ENSG CPSI ASEI ALTR) I currently subscribe to Weiss’ Safe Money Report which was $50 and an OK newsletter, but their buy price recommendations need improvement – way too many BUY at Market recommendations. If you subscribe to their free Money and Markets newsletter, they email you constantly, trying to sign you… Read more »
Steve
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Steve
January 13, 2012 3:58 pm

Sorry. I the 12 picks were from the 2011 contrarian portfolio

David
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David
January 13, 2012 7:54 pm

I have paid for three of the high-dollar money-back Weiss newsletters, and it has been a good lesson in humility: theirs, as the stock-picker vaunted by Martin in the smarmy sales vids falls flat and the portfolio loses money. Just be sure to do two things as you spectate the train wreck: do NOT buy any of the picks (no point in throwing away your money); and, be sure to get your entry fee back before the full-refund period is over. That’s what Weiss does best, the 100% refunds. Credit where credit is due, ya know.

blackdogxx
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blackdogxx
June 15, 2012 9:18 am
I also subscribed to the MDCP investment letter in the past (when Claus Vogt was the stock picker) and was disappointed. Even as a casual investor (who keeps his head barely above water), I found Claus picks were too little too late. He was too slow to get in and too slow to get out. I find the cheaper advice from Doug Fabian (regardless of how you feel about their erformance) does emphasize to set a trailing or fixed sell stop. That one safety valve has saved me from myself in a lot of cases and it only costs about… Read more »
Henry Montoya Miami
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Henry Montoya Miami
July 26, 2012 10:08 am

Weiss is a good salesman. Nothing more. Nothing less. I was one of the first to trust him and Claus. I lost thousands. Henry

I appreciate your candor, Edelstein is a Alarmist and hypocrite
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Weiss claims to know it all. Fuggedaboudit

rogersvensson
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rogersvensson
August 28, 2013 1:50 pm

I think his ratings on stocks, insurance companies, soverign countries and bonds are good. He is very conservative in his evaluations of the 5,000 + companies that he rates unlike Moody’s and Standard & Poors who get paid by those they rate and act accordingly.

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