A popular investment strategist shares her contrarian strategy with growth stocks as richly valued as in the dot-com bubble – and names 13 of her favorite stocks, ETFs, and commodities to buy now

• Contrarian investing requires boldness, conviction, and patience, but it tends to pay off.
• Lyn Alden, head of Lyn Alden Investment Strategy, warns growth stocks are richly valued.
• Here are Alden’s 13 best investing ideas, from sectors and stocks to ETFs and commodities.
• See more stories on Insider’s business page.

Many investors get increasingly comfortable when stocks rise and cautious when they pull back. Contrarian investors like Warren Buffett do the opposite and get “fearful when others are greedy,” and vice versa.

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It’s no wonder that the average stock-picker’s portfolio returned just 1.9% per year from 1998 to 2018, notes Lyn Alden, founder of Lyn Alden Investment Strategy. Following the crowd often leads to buying high and selling low. Alden encourages investors to think differently.

“Always ask yourself actively: What is market consensus missing?” Alden said in a recent interview with Insider. “Because we all kind of look at the same data, the same big economic data, and I think a contrarian investor has to go deeper under the surface and find bubbles or opportunities that are less obvious.”

Stocks have enjoyed an unusually strong backdrop in 2021: a once-in-a-lifetime economic reopening, generous fiscal policy, easy monetary policy, and progress in the battle against COVID-19. The S&P 500 has advanced 19% year-to-date on the back of remarkable earnings growth.

For months, market participants have viewed every pullback as a buying opportunity, which explains why the S&P 500 hasn’t suffered a 5% decline since October. That highly positive sentiment coupled with lofty growth stock valuations should make contrarian investors uneasy.

“We have one of the biggest gaps in valuation between growth stocks and value stocks that we’ve had since the dot-com bubble,” Alden said. “And so overall, I find that there’s more opportunities in the value side of things than the growth side of things, although there of course are opportunities in both.”

Alden isn’t calling for a tech bubble to burst like in 2000, but she said stocks may be in for some road bumps. It seems troubling that economic growth is slowing as equities trade at valuations typically seen late in economic cycles, Alden said, but there are reasons for optimism.

Banks are largely loosening credit standards and demand for credit is high, which are both signs of a healthy economy. This economic cycle has plenty of room to run, Alden said, even if some past market leaders will lose steam under the weight of ambitious valuations.

Mastering the contrarian investing strategy

Alden’s contrarian investing strategy requires separating stocks out by sector, as there might be excessive greed in some parts of the market and overly bearish sentiment in others.

Economically sensitive value stocks that have long been under-loved have room to run, Alden said. She’s especially bullish on names in the energy and health care sectors, which are less sensitive to the threat of rising inflation because of their decreased exposure to consumers.

Energy stocks, including midstream energy pipeline companies, and commodities like copper and gold, are undervalued pockets of the market that have been long-term laggards. Although energy has been one of the strongest performers since the pandemic, it has trailed the other sectors over the past 10 years.

It can be nerve-wracking to increase exposure to losing trades – even for big-money institutions, which are largely underweight those beaten-down names, Alden said. But that’s precisely what attracts contrarian investors like Alden to those names.

Many of Alden’s top investing ideas lie overseas. Emerging market stocks trade at steep 50% discounts to US equities but have stellar growth prospects, according to O’Shaughnessy Asset Management, which added that investing barriers like low liquidity and high costs are falling.

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Alden sees opportunity in the following regions: Russia, India, Latin America, and Southeast Asia. She says investors can add exposure to these regions through these exchange-traded funds: the VanEck Vectors Russia ETF (RSX), the iShares MSCI India ETF (INDA), the iShares Latin America 40 ETF (ILF), and the Global X FTSE Southeast Asia ETF (ASEA).

A quintet of stock picks round out Alden’s favorite names to buy now: Enterprise Products Partners (EPD), which Alden called a well-managed midstream pipeline company that’s highly diversified with an attractive dividend yield of 8%; a pair of defensive health care stocks in CVS Health (CVS) and Bristol-Myers Squibb (BMY); as well as the well-managed Sberbank of Russia, (SBRCY) and DBS Group (DBSDY), which is Singapore’s largest bank.