Contrarian investing often gets a bad rap.
Investors have put a lot of capital behind the notion that the three stocks listed below will decline in price. If that happens to a significant enough degree, many of those investors will make a lot of money.
But there’s always room to argue that any position in the stock market is wrong. That’s where contrarian investing comes in. It’s for those who seek to swim against the current.
They hope to prove that the stocks listed here are maligned. Instead of falling, they argue that the short-sellers are wrong and that these companies are destined to increase in price moving forward.
Let’s look at three stocks on this list that, according to contrarian investing principles, have better chances to rebound.
The case for continued belief in C3.ai (NYSE:AI) stock goes something like this: It remains a pioneer in the enterprise AI space and has yet to truly disappoint.
Is it Nvidia (NASDAQ:NVDA)? No. But just because it doesn’t offer AI upside to the same degree doesn’t mean that it has suddenly become a disappointment.
That notion runs counter to what short sellers believe. The company recently gave revenue guidance for the upcoming quarter of between $70 to $72.5 million.
Wall Street pegged sales at $71.6 million for the period so the two are roughly aligned in their expectations.
But short sellers, who’ve shorted nearly 36% of AI stock’s float, remain deeply negative. I think so many investors feel that way about C3.ai’s shares because they’ve equated other AI stocks with its shares. So far, there’s only one Nvidia.
Every AI firm can’t provide blowout AI revenue forecasts immediately as Nvidia did recently. C3.ai is moving into enterprise AI at roughly the same rate it was and that provides enough reason to believe that the negative sentiment has been overdone.
Desktop Metal (DM)
Desktop Metal (NYSE:DM) makes 3D printing platforms and materials.
The 3D printing, or additive printing market has seen wild swings regarding expectations in recent years.
It’s gone from hot to cold several times which partially explains why investors have grown so sour on DM stock.
Roughly 32% of its shares are shorted currently. Looking at Desktop Metal’s financial statements there’s actually reason to be optimistic. Revenues fell slightly, from $43.7 million to $41.31 million.
That’s not a great sign to be sure. However, even amid declining sales the company managed to narrow its losses.
Net losses declined from $70 million to $52.64 million so the company’s cost-cutting initiatives are arguably working. The company reaffirmed its revenue guidance between $210 to $260 million for this year.
Reaffirmation is positive, but that’s still a wide target which probably doesn’t help the company. Desktop Metal also expects EBITDA breakeven this year.
Beyond that, the company plans to combine with Stratasys which offers potential. Anytime there’s fresh potential it becomes that much harder for short sellers to convince others of their bearishness. And that benefits DM stock.
Fisker (NYSE:FSR) shares continue to face difficulties despite the EV stock offering what I believe to be real value.
One of the reasons that Fisker has fallen recently is simply due to an analyst downgrade. Wolfe Research analysts downgraded FSR shares from a ‘hold’ rating to ‘sell’. Wall Street opinions matter.
However, I plainly disagree with the logic that the analysts used to justify the reduction. That analyst, Shreyas Patil, cites strong EV competition as a serious negative for Fisker. There’s no denying that there are a lot of options these days.
That’s a reasonable argument given that Fisker has just begun delivery of its Ocean SUV. I’ll concede that it’s an uphill battle facing Fisker.
However, I strongly disagree with the notion that Fisker’s production partnership with Magna International (NYSE:MGA) is a net negative. Fisker doesn’t control its pricing in that regard which is the argument used in this case.
But the Magna International partnership allowed Fisker to get where it is currently. The company probably would’ve failed like so many other EV SPACs had it not tapped Magna to outsource Ocean production.
I’m still a believer that the Ocean will be a better quality product for that choice, not a pricing risk.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.