There are some ASX share investment decisions that I’ve made that I’d call contrarian, and they have done well for me so far.
Being contrarian is making investments that seem to go against the sentiment of the market. Sometimes it can mean investing in an individual ASX share that has been sold off, or perhaps investing when the whole market has declined.
Warren Buffett’s advice about when to invest (and not to) is very relevant here:
Be fearful when others are greedy and greedy when others are fearful.
Although I didn’t invest in it, an example of being contrarian about AGL Energy Ltd (ASX: AGL) shares in February has been the right call (so far).
Having a contrarian opinion is not about being contrarian for the sake of it, but because I/we think that the market is wrong or being too short-term about a company’s prospects.
Having said that, these are two ASX share investments that I have made in recent years that I’d call contrarian which have turned out well.
Fortescue Metals Group Ltd (ASX: FMG)
I think the best time to invest in many ASX mining shares is to invest with a contrarian mindset.
Commodity prices change all the time and seem to go through cycles. It’s unpredictable when the rises and falls are going to happen. But I believe that it’s when times look bleak for the commodity that it’s the best time to be looking at investing in an ASX mining share like Fortescue, BHP Group Ltd (ASX: BHP) or Rio Tinto Ltd (ASX: RIO).
Fortescue shares dropped to close to $14 in October 2021. That’s when there was a lot of uncertainty surrounding the Chinese real estate market, with multiple names (such as Evergrande) running into financial troubles.
I thought it looked good value after a heavy share price fall. I also liked that it was (and still is) investing heavily in green energy production, which could be a long-term value booster for shareholders.
At that lower level, I liked that I was getting cheaper exposure to Fortescue Future Industries (FFI) and a good future dividend yield. I also believed the iron profit would bounce back.
Since that investment, the Fortescue share price has risen 52% and I’ve also received fully franked dividends amounting to a 20% return.
Brickworks Limited (ASX: BKW)
Brickworks is one of the largest building manufacturers in Australia. How the housing market and interest rates are going can have a big effect on the (perceived) outlook for this company.
Roughly a year ago, the Brickworks share price fell as investors worried about the impacts of all of the interest rate hikes, for both the wider market and Brickworks, leading to the Brickworks share price falling to just $20 after being above $24 earlier in 2022.
I believe building products is another cyclical industry, and the best time to invest is when the market is bearish about housing and construction.
Not only was the Brickworks share price down, but it was trading at a large discount to the underlying value of its Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares and industrial property holdings. I think that backdrop provided plenty of protection against the volatility, and gave me a good margin of safety to invest. My contrarian ASX share investment here has risen by 26% in less than a year. I’ve also received 64 cents of dividends since then, being a fully franked dividend yield of 3.1%.
