Mark Hulbert: Who has the guts to buy Equifax stock — and potentially make a killing?
CHAPEL HILL, N.C. (MarketWatch) — Here’s a test of whether you have what it takes to be a contrarian investor:
Did you invest in Equifax Inc.
after its stock plunged on the news of the company’s huge data breach?
I can almost hear your howls of protest. Surely being a contrarian doesn’t require investing in a company in Equifax’s terrible situation, where personal data including Social Security numbers of an estimated 146 million customers were hacked. And the news keeps getting worse. This week it was revealed that driver’s-license data for 11 million Americans was also breached. And the company faces countless legal challenges because it knew about the data breach for some time before revealing it publicly.
But your protests just show that you’re not a true contrarian — you’re running with the herd. After all, this is what Baron Nathan Rothschild, the famous contrarian, meant when he said that “the time to buy is when the blood is running in the streets.”
One adviser who does have the contrarian courage is Teal Linde, editor of the Canada-based Linde Equity Report. He wasted no time recommending Equifax’s stock after the company disclosed the data breach in September, writing to clients: “One of the best buying opportunities occurs when a company with an impressive track record suffers a temporary setback that pummels its share price.”
As he said in an interview earlier this week: “If you want to be a contrarian investor, you have to be able to step in when things look their worst — because once you wait for headlines to soften up, it’s too late.”
To be sure, contrarians shouldn’t automatically invest in every company whose stock has shed a third of its value, which is how much Equifax’s stock dropped from its early-September high to its post-announcement low. But Linde says there are several reasons Equifax’s long-term prospects remain bright:
• The company is relatively immune from “reputation risk.” Linde points out that Equifax’s customers are not the consumers whose data was stolen, but the lending institutions that need Equifax’s data to process loans and credit card applications — institutions that care relatively little about Equifax’s reputation.
• The regulatory changes that are being suggested in the wake of the data breach “do not appear to impact Equifax’s long-term growth potential.” Those changes are largely focused on tighter security and more timely public notification in the case of a breach. They pose few long-term challenges to Equifax’s core business of collecting consumer data and aggregating it for lending institutions — a business that has been growing at a double-digit rate for years.
• “They [Equifax] offer a service that is necessary. This is not a discretionary product that the world could do without.” Furthermore, Linde adds, Equifax is one of the three largest companies globally that provide this service, and banks and credit card companies do not want this number to shrink.
The proof of the pudding is in the eating, of course. And Linde’s letter has been one of the rare ones to have beaten the stock market in the long run. According to my Hulbert Financial Digest’s monitoring, it has beaten a buy-and-hold strategy by more than 4 annualized percentage points since summer 2001, which is when our coverage of his service began. (Data are through Sept. 30.)
That doesn’t guarantee that a bet on Equifax will pan out. But Linde’s track record should nevertheless give courage to skittish contrarians.
Linde readily acknowledges that Equifax currently is in “the dog house.” But he adds: “Having watched many political campaigns, I’m convinced that people have short-term memories.”
In five years, he predicts, few will remember Equifax’s current travails.
For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email email@example.com.
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