In today’s market, dominated by tech giants and fueled by artificial intelligence (AI) sentiment, it’s easy to overlook companies that don’t fit the hype of the moment. Contrarian investing is a strategy that involves going against prevailing market trends or sentiment. This approach can be highly rewarding, especially during times of market volatility, as it may allow investors to buy potentially undervalued stocks with significant upside potential.
Extensive research and market data strongly suggest that contrarian investment approaches tend to yield superior returns compared to overall market performance. Numerous studies have consistently demonstrated that strategies that go against prevailing market sentiment often outpace standard benchmark indices over time. Among notable contrarian investors, Warren Buffett is one of the most important ones. Buffett looks for undervalued assets that have been overlooked or beaten down by the market and capitalizes on market inefficiencies. In this article, we explore three contrarian stock picks that could deliver substantial gains for those willing to bet against the market.
Epam Systems (EPAM)
We start our discussion on contrarian stock picks with the digital transformation services and product engineering name Epam Systems (NYSE:EPAM). The company focuses on the IT services industry, providing digital platform engineering and software development services. Additionally, Epam provides infrastructure management, maintenance, support services and consulting services in business, technology and digital design.
For the first quarter of 2024, Epam reported revenue of $1.165 billion, a year-over-year (YOY) decrease of 3.8% on a reported basis. Adjusted diluted EPS came in at $2.46, down 1 cent from a year ago. The ongoing conflict in Ukraine continues to pose risks, given Epam’s historical presence in the region. Although the company has made significant progress in relocating employees and operations, uncertainties remain.
Recently, Epam has acquired Odysseus, which specializes in healthcare data analytics, to bolster its digital transformation capabilities in the life sciences industry. The combined entity will leverage data and AI to streamline research and clinical trials.
EPAM stock is down 37% year-to-date (YTD) and the shares are trading at 16.7 forward earnings and 2.1 times sales. Meanwhile, the 12-month median price forecast for Epam Systems stock stands at $211.90, an upside potential of 15% from current prices.
GitLab (GTLB)
Next on our list of contrarian stock picks is a market leader in development and operations (DevOps), GitLab (NASDAQ:GTLB). The company offers a comprehensive DevOps platform that helps companies reduce their software development cycle times and improve productivity.
The company reported solid first quarter fiscal year 2025 results. Revenue grew 33% YOY to $169 million, driven by robust growth in large customer annual recurring revenue (ARR). Adjusted EPS surpassed analyst estimates with 3 cents, a significant improvement from a loss of 6 cents per share in the previous year.
GitLab has been expanding its product portfolio to unlock further customer value. In the first quarter, customers with more than $100,000 in ARR grew 35% YOY as the company continued to enhance its partnership with leading cloud providers.
The global DevOps market is expected to grow at a 19% compounded annual growth rate over the next ten years. In fact, GitLab’s management anticipates 27% YOY revenue growth in the second quarter as well.
Since January, GTLB stock is down 26% due to competitive concerns amid a broader SaaS slowdown. Shares are currently changing hands at 10.9 times trailing sales. Analysts’ 12-month price targets suggest 48% upside potential from current levels.
Teledyne Technologies (TDY)
We conclude our discussion of contrarian stock picks with Teledyne Technologies (NYSE:TDY), a prominent player in the electronic equipment, instruments and components industry. The industrial services giant has established itself as a leader in providing enabling technologies for industrial growth markets across the globe. The company serves a diverse range of applications from marine and environmental monitoring to defense and space technology.
In the first quarter of 2024, Teledyne Technologies reported a mixed performance. The company achieved record non-GAAP operating margin, EPS and free cash flow. However, overall sales were impacted by a decline in some short-cycle imaging and instrumentation markets. Specifically, sales in industrial automation and test/measurement markets are forecast to decline significantly in 2024. Despite these challenges, Teledyne expects these declines to be offset by growth in its marine, aviation and defense businesses, resulting in flat full-year sales compared to 2023. The company also anticipates maintaining its overall operating margin at the same level as 2023.
Recently, Teledyne has successfully completed the acquisition of Adimec, which provides high-performance mixed-signal test solutions. This move strengthens Teledyne’s presence in the semiconductor test equipment market, a crucial segment for the production of advanced microchips.
Despite various positive developments, TDY stock has lost nearly 11% YTD while the shares are changing hands at 19.7 times forward earnings and 3.3 times sales. Finally, the 12-month median price forecast is $471.90, suggesting an upside potential of over 21%.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.