If you’re familiar with our contrarian philosophy here at Schaeffer’s you know we like to go against the crowd. If absolutely everyone is pessimistic on a stock then they’ve probably sold out of that stock already or may even have bearish bets against it. In those situations selling pressure is exhausted or minimal.
A stock with that kind of pessimism toward it but rallying is a perfect situation for a huge rally. In those situations there are plenty of investors who do not own the stock and can be persuaded to buy in which will drive the stock higher. An additional tail wind for the stock would be an unwinding of the bearish bets against it. This might include short covering or analyst upgrades.
I ran a stock filter to find these situations. Looking over the past six months the stocks in the table below have seen their short interest increase, the percentage of analysts who have buy ratings on them have decreased and there have been more puts bought to open than calls. Despite the pessimistic behavior by these players the stock is higher over the past six months. This is an ideal contrarian set up.