Since its founding in 1995, the Contra the Heard investment newsletter has been providing subscribers with thoroughly researched stock picks that all have one thing in common: a strong, data-driven case for undervaluation, despite broader market pessimism, making them prime candidates for a re-rating.
This article is a journalistic opinion piece which has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
The company has excelled in its pursuit, achieving a ten-year annualized return of 19.1 per cent from its President’s Portfolio from 1992 to 2021, a 11.6 per cent annualized return from its Vice President’s Portfolio from 2011 to 2022, and a 13.4 per cent compound annual growth rate from the Contra portfolio from 2023-2025, with the portfolio standing at C$1,894,160 to kick off 2026.
The team eats its own cooking, investing only in stocks they cover, priding themselves on robust, fundamentals-based due diligence, designed to optimize subscribers’ ability to recognize a stock’s reasons for conviction independent of the market’s pulse.
Contra the Heard, published quarterly, and now in its fourth decade, has built a growing and dedicated following of individual investors, with emphasis on those willing to get into the weeds to justify a new investment. As such, it’s a potentially value-added tool for Stockhouse readers who identify with the contrarian mindset.
I sat down with Philip MacKellar, General Manager of Contra the Heard, a former analyst at Sustainalytics and financial advisor for Freedom 55 Financial, to learn a little bit more about the newsletter and its approach to public markets.
1
Trevor: Stockhouse readers will be familiar with the tolerance for pain, in the form of volatility, required to be a successful contrarian investor. Where does the capacity for that tolerance stem from in your personal life?
Philip: I don’t personally view volatility as a source of fear or pain, so in that regard, I think I’m just wired a little differently. If anything, I see a period of volatility as something to be embraced, something to be taken advantage of, or exploited. And I like downturns as a result. Sell-offs are where I feel most comfortable.
There was maybe a half-hour or 45-minute period in March of 2020 when I started to think about it, but in the last decade or so, it was literally a half hour.
Where I do feel pain, and where I have very low pain threshold, is when a company’s fundamentals are impaired. There could just be a lot of debt, or I could just be looking at a situation and be worried about shareholder death through dilution So, I don’t actually think I have a high-paying threshold for that. My goal in those cases is to try and avoid companies like that in the first place.
T: When it comes to loving downturns and being comfortable with that situation, I think that’s pretty unique, in terms of investor temperament, because most people are going to run for the hills. Where do you think that ability comes from in your life?
P: When I was first getting into markets and really starting to invest in 2007-8, I remember working as a co-op student in the financial district in London, England, and I remember seeing very clearly every single day people on the street had been fired. They had the little boxes full of desk plants and stuff, and some would be smoking with a cigarette in each hand because they were so stressed out. As I was watching these people, I’d literally be entering buy orders, and I just thought to myself: Everyone thought the world was ending, but it probably wasn’t gonna end. Paraphrasing an expression my dad has, good is rarely as good as you hope and the bad is rarely as bad as you think. I kind of try to keep that in my mind in all aspects of life.
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T: Contra the Heard has built a multi-decade track record investing in contrarian stocks, now in its fourth decade. You’re not too far behind, having been in the markets since the early 2000s. How has your investing/Contra the Heard’s investing philosophy changed over time, in terms of approach to due diligence in the micro sense, or in terms of overarching principles in the macro sense?
P: I would say there are small changes which have occurred to the way we evaluate security. We take into account shareholder dilution more, we take into account certain things around cash flows or current ratios, or certain financial metrics. On the whole, though, those kinds of security-specific things are fairly small. The biggest changes have occurred at the portfolio level: how we think about selling losers, how we think about selling winners, how we try and better incorporate positive fundamental changes to a corporation, and how we try and factor in the very, very powerful momentum that can underpin a stock, and that can take its valuation much higher than we deem reasonable, but that the market does deem reasonable.
3
T: When it comes to evaluating the business underlying a downtrodden stock, Contra the Heard’s investment philosophy aims to identify names able to generate a more than 50 per cent return. Why is that your magic number in terms of minimum potential, considering that many small-cap stocks may move by that much over short periods for exogenous, non-fundamental reasons?
P: It comes down to margin of safety for me. If you’re thinking the best that your stock can do is, say, 20 or 25 per cent, that’s not a big valuation gap between where it’s sitting today and where you think it could be. I would just caveat that that 50 per cent return is inclusive of dividends as well. The way the cash flow ends up coming to us is less important than the fact that the company can actually generate good returns over time.
T: I guess that means that Contra the Heard does not focus on ultra-micro-cap stocks that are may move by 100 or 200 per cent in a single day. Does the news letter have a bottom threshold for market capitalization?
P: Yeah, that’s a really good question. We found that our following is such, it’s large enough that we have to be cognizant of how many people are getting into a stock behind us. So, I have found that anything that has less than $100 million in market cap or public float is too small for us. And then for average daily volume, we want to see not tens of thousands of dollars being traded a day, but hundreds of thousands at least, just because we don’t want to blow up a stock after telling our subscribers about it. It’s just not what we want to do.
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T: Are there any circumstances under which Contra the Heard would consider investing in an unprofitable business? Why yes or why no?
P: Running a business that makes sales is difficult, running a business that doesn’t make any sales is incredibly difficult, so we just want to avoid having to navigate that situation right off the bat.
A company that reports one or two quarters without any profits, to me, isn’t that big of a concern, especially if it’s related to a non-cash impairment or something like that, a goodwill impairment, even an inventory write-down, or sometimes you see deferred tax assets being written down. Those sorts of things don’t imply that there’s something fundamentally wrong with the business.
What is more concerning is when you see operating income that’s consistently negative. That implies that there is something wrong with a business’ day-to-day operations and you have have a constant money loser on your hands. But, a quarter or two, or even a year of no profits, on its own isn’t a big red flag for Contra the Heard.
T: Have you ever owned a name that created shareholder value exclusively through adjusted EBITDA or some other profitability metric that isn’t net income, or whatever without ever reaching profitability?
P: Years ago, there was a company I really loved Century Aluminum. It’s still publicly traded. A very interesting stock. The reason I loved it is because it had a huge shareholder in Glencore, so it had financial backing, as well as a clean balance sheet. But it was full of operating leverage, there would be times when you weren’t even making gross margins, much less operating margins, so the stock had wild beta. Like, beta over two and a half times. So, when the market went down, it crashed. And when the market rallied, it rallied. But the balance sheet was strong enough and the shareholder was supportive enough that I didn’t mind owning it, even though you’d get these wild swings from, like, $3 to $30 and back again. It was a wonderful stock to play until its balance sheet took a turn for the worse. Additionally, if Glencore ever wanted to, they could just take out the company and screw the rest of the shareholders, and I’m not comfortable with that dynamic anymore.
5
T: When you make money investing in contrarian stocks, who do you think is often on the other side of the trade?
P: It could be anybody, a closet indexer, an ETF, a mutual fund or a momentum investor. The person who I do not want to sell to under almost any circumstance is the insider. I’d be miffed if I was selling my shares to the CFO or the chairman of the board, because those people know what their customers are feeling and how the business is doing. They have more insights than you, me, and frankly, almost probably everybody else in the market.
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T: On a scale from pure gut feeling to cold, hard data, where does Contra the Heard’s process for evaluating management teams lie? How do you balance the art and the science underpinning that process?
P: I would say it’s a data-driven exercise. To me, somebody’s gut feeling only gets to be good after years and years of practice and data accumulation and experience, including making mistakes, enduring pain and then recalibrating in the wake of those mistakes. It’s a little like watching a professional athlete. When you watch somebody at the Olympics just now, they make look like they’re operating on gut feeling, it happened so fast, it looks like a reaction, but it actually reflects years of practice as well.
For me, personally, I’ve found that talking to management teams sometimes biases me in a way that I don’t personally like, much in the same way that some people might like their hometown hockey team for no fundamental justification. It’s in your neighborhood, which is great, but other than that, there’s nothing there. So I try to find all the information that management could tell me on my own through third-party sources.
7
T: Based on Contra the Heard’s website, the company is open to trading around positions minimally and strategically. What does that tend to look like in practice?
P: We not to trade a lot. There’s a lot of value in sitting on your hands. Our portfolio typically holds between 25 and 35 stocks and we do between 20 and 30 trades a year. That said, our goal at Contra the Heard is to be somewhere between a hold-forever investor and a day trader. In this way, our average hold period is measured in years, not days, months or decades, and we don’t want to ever be a forced seller. That means we’re not using leverage and we’re not shorting. We are also not closet indexing; for example, after the 2008-2009 financial crisis, we probably had a third of the portfolio in regional banks and the S&P 500 or the TSX was nowhere close to that level.
T: Could you maybe give me an example of a price-value dislocation that might prompt a trade?
P: Oftentimes there’s good core fundamentals underpinning a business, so it has clean financials, low valuations and high insider alignment, but that doesn’t exempt it from short-term volatility, like a drop following an earnings report or because of some big item about the company the market isn’t appreciating, perhaps a growth driver, possibly M&A, or the opening up of a new market. It could also just be a market sell-off, like in April last year with Trump’s tariffs, which allowed us to make handful of trades, open some new positions and ad to some old positions that were suddenly considerably cheaper based on our due diligence. We also do quite a bit of trading in December and November during tax-loss selling season.
8
T: Now let’s bring out the crystal ball. What challenges stand out to you in the current market environment?
P: I think today’s market is actually very challenging. There are so many companies hitting my sell targets, and I am selling quite a bit. And then, I end up with a ton of cash, because I just don’t know where to deploy it. This is a problem I’ve had for probably 18 months, maybe even 2 years at this point and I don’t know when that will change.
Right now, when I look out at the markets, they seem very overvalued to me, trading at record highs on price-to-book, price-to-sales, price-to-earnings, almost everything. Then, if you flip the ratio and you just look at dividend yield or earnings yield, it’s, again, really unattractive. So, valuations are stretched. But when you layer on the macroeconomics, it looks even worse, because debt loads around the world are very high, and some of the world’s largest economies have very large deficits. India, Brazil, China, the US, the UK and France all have deficits equal to 5 per cent of GDP or more. If any one of those gets really whacked, everyone else will feel it, but if multiple economies that size get whacked, we’ll really feel it.
All things considered, one could make a really good argument for a downturn right now. We just can’t know when it will happen. What could have been a correction can always end up being a wonderful year for investors, and vice versa.
9
T: Where are you seeing pockets of opportunity that investors should keep their eye on?
P: Well, as you might suspect, I don’t see very many. The markets wobbled a little bit here in the new year, which is nice. It’s nothing special, though. I mean, we’re not down a significant amount at all. There are a few healthcare names which look interesting. Advancements in AI are hitting software stocks, though, to me, that looks too early to make a really good call as to whether the market is correct or not, and if so, by how much. Nevertheless, the watchlist is slowly accumulating software names as a result. There are some energy names as well, and for more enterprising investors, I’m seeing pockets of weakness overseas in economies either in recession or just bumping around and not doing that well. Those are places that we are looking as contrarian investors.
T: How does Contra the Heard go about dwindling down its investable universe to include only the most prospective stocks?
P: In our watchlist, I will follow almost anything, but I will rank things, with constant money losers with next to no revenue at the very bottom, and companies with a robust business, which have fallen on hard times for whatever reason, filtered towards the top, all the while taking into account insiders activity, valuations and financials. And those companies with good financials. The watchlist really does try to differentiate between those two extremes.
10
T: Please share a stock Contra the Heard is a shareholder in and offer my readers a brief sense of your reasons for high conviction.
P: Ceragon Networks is our top growth pick for this year. They’re an Israeli-based company providing 5G and telecommunication products and services, so in that overseas bucket that we were just talking about. The business’ fundamentals are good, including clean financials, low valuations and high insider alignment, and we think the market isn’t appreciating that 5G is a high-growth segment with a very good long-term trajectory.
In 2024, Ceragon was also our top growth pick, and we started to think the market was getting it. It rallied over 100 per cent that year and we took some profits in early 2025 at a 161 per cent gain. Then, one of their large Indian customers got into trouble in summer 2025 and the stock really took a hit, falling all the way back to just about where we had first purchased it. So we started loading back up, and now we own more today than we owned previously.
The market is just far too focused on this near-term issue in India, and it could continue to drag on the stock throughout this year, but if that happens, we’ll buy more, as we think the market will start to recognize that this speedbump is nearly behind the company now.
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