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(Story updated with insight on Southwestern Energy from Morningstar analysts)
NEW YORK (TheStreet) -- A "contrarian" investment approach can yield big returns if investors target quality stocks that have fallen out of favor for one reason or another.

Being overly pessimistic when a stock is in free fall or too optimistic when shares surge can do serious damage to a portfolio, says Jeffrey Sica, chief investment officer of Sica Wealth Management, whose firm has more than $1 billion in client assets, real estate and private equity holdings under management.

"The herd is usually wrong," Sica cautions.

Sandy Villere, co-manager of investment firm Villere & Co, agrees. He says for instance that investors who were overly pessimistic about

Constant Contact


when shares were "out of favor" have now missed the boat on the stock, which is up nearly 35% year-to-date as of Tuesday's close at $31.31.

The stock was weighed down last summer by expectations that the provider of online market services using email and social media wouldn't be able to attract as many subscribers as they had hoped because many of its services were still too new to the market. Their offerings were "not yet well understood," Villere explained, and subscriber growth in the company's fiscal third quarter was less than expected, scaring away buyers. But "that was just a quarter anomaly," said Villere.

Villere decided to build a position in Constant Contact months ago when the shares were still in the $16-$20 range.

"The company was really misunderstood," said Villere, who was especially bullish about a social media marketing tool the company launched for small business owners wishing to target Facebook and



"It allows a florist for example the opportunity to get out a message about roses being on sale in ways they may not have been familiar with to all of their customers," he said.

Given the company's exposure to the Facebook frenzy, the social media giant's filing to go public on Feb. 1 has been a boon for Constant Contact investors, and the stock was carried back above $30 in the wake of the news.

Another example of this strategy that Villere cites is card payments company

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TheStreet Recommends


(V) - Get Visa Inc. Class A Report

. He started buying the stock when it got down into the $70 range last March amid worries that the proposal by Sen. Dick Durbin (D, Ill.) to limit interchange fees would hurt Visa. The shares closed Tuesday at $118.95, up 60% for the past year.

When Villere looked at Visa, he saw a company with solid cash flow and a strong management team. As it turned out, the rulings on interchange fees were less onerous than expected, and Visa has been hitting new highs in the wake of yet another above-consensus earnings report earlier this month.

"If people get too excited about the stock, we'll sell it," he says. Even with the run-up, Visa shares are trading at a forward price-to-earnings multiple of 16.8X, pretty much in line with rival


(MA) - Get Mastercard Incorporated Class A Report

at 16.4X, whose shares have jumped 75% in the past year.

The following are

three "contrarian" stocks

that investors can still get in on.

Carnival Corporation

(CCL) - Get Carnival Corporation Report

Carnival shares have been hammered since its Costa Concordia cruise liner capsized off the coast of Italy on Jan. 13, causing the deaths of 25 passengers. The stock is down nearly 13% since the accident occurred, and 25% in the past year. On Monday, Carnival had another accident, this time aboard its Costa Allegra, where a fire broke out on its way to the Seychelles from Madagascar. There were no reported injuries.

Sandy Villere describes Carnival as "down and out," saying people "hate it" right now, but he believes this is actually a great time to buy the stock and tap into its virtual duopoly with

Royal Caribbean Cruises

(RCL) - Get Royal Caribbean Group Report


"In 12 months people will forget the ship ever crashed," Villere explains. He thinks the stock will inevitably return to pre-accident levels of around $35, resulting in a 15%-plus return. Not to mention the 3%-plus forward dividend yield investors will enjoy.

"After 9/11, people thought they would never fly again," he says. "It was scary at the beginning, but over the long run, people started flying again." Villere estimates that 80% of Carnival's clients are repeat customers, which indicates the business has a solid base to rely on.

Wall Street is mildly bullish on the stock with 12 of the 20 analysts covering Carnival at either strong buy (6) or buy (6), and the 12-month median price target sitting at $34.50, implying potential upside of 16.6% from Tuesday's close at $30.01.

Carnival is currently in the final month of its fiscal first quarter, and it plans to report its financial results on March 19. The average analysts' view is for a profit of a penny per share on revenue of $3.56 billion.

Check out TheStreet's quote page for Carnival Corporation for year-to-date share performance, analyst ratings, earnings estimates and much more.

Dana Holding

(DAN) - Get Dana Incorporated Report

Russell Croft, portfolio manager for the

Croft Value Fund


, which has $900 million in assets under management, thinks Dana, an auto parts maker, looks attractive right now, citing strong management, a new dividend and favorable industry trends.

"Good chance to outperform the market by a decent margin over the next couple of years," he says, calling Dana a "classic cheap stock" with much more room to grow. "I think Dana was off of a lot of peoples' radar because of the tough time they and their industry had during the last big downturn in 2008 and 2009."

As of Tuesday's close at $16.34, the shares have nearly doubled since hitting a 52-week low of $9.45 on Oct. 4 but the forward price-to-earnings multiple is still only 7.2X, much lower than 13X multiple of the S&P 500.

A couple of years out of bankruptcy protection, Dana brought in CEO Roger Wood from larger rival


(BWA) - Get BorgWarner Inc. Report

last year, and Croft says that was the catalyst for his decision to buy shares.

"He is focused on margin," says Croft, who also expects the stock to benefit from the rebounding truck market and its growing presence in the promising electric and hybrid car markets. "The stock is not as green and cheap as it was a couple of months ago," he notes, but "in a market like this where people are taking on more risk, I think Dana's valuation can keep going up."

Another plus, last Thursday, Dana's board initiated its first-ever quarterly dividend of 5 cents a share of common stock. The majority of the sell side is on board with Croft's bullishness with 11 of the 14 analysts covering the stock at either strong buy (4) or buy (7), and the 12-month median price target at $20.75, implying potential upside of 27% from Tuesday's close.

Check out TheStreet's quote page for Dana Holding for year-to-date share performance, analyst ratings, earnings estimates and much more.

Southwestern Energy

(SWN) - Get Southwestern Energy Company Report

With natural gas prices stuck at depressed levels, Croft say that this independent, North American explorer and producer of natural gas, as well as crude oil, is one of his favorite contrarian stocks right now. He thinks there's a "good chance" the shares will outperform the broad market over the long term.

Croft thinks shares of the Houston-based company are a buy right now, partly on the expectation that U.S. natural gas prices will eventually rise on favorable energy and environmental policies, a rebounding economy and the potential full-fledged export of the commodity to Asia and Europe, where prices right now are much more expensive.

When all the stars align, Southwestern, with its conservative management team and knack for keeping operating costs low, should find itself in a very lucrative situation, he thinks.

The company has been booking operating costs of about $1.50 per million cubic feet, according to Croft, which is low when compared with the approximately $2.50 at which natural gas is now trading, and among the lowest in Southwestern's peer group. The company continues to expand acreage in the Marcellus and other shale areas and should be able to grow production at 15% a year over the next three to five years, according to Croft.

"Right now we don't need a lot more electric or power plants," says Croft. "But when we do, it will be

fueled by natural gas because nuclear takes seven to ten years to set up. Natural gas plants are quick to put up and coal is dying down," he adds.

Shares of Southwestern Energy, which doesn't distribute dividends, got even more cheaper on Tuesday, closing down 5.7% at $33.31 after the company's latest earnings report came in shy of Wall Street's consensus view.

After Monday's closing bell, Southwestern reported earnings of $158.5 million, or 45 cents a share, on revenue of $744.2 million, below the average estimate of analysts polled by

Thomson Reuters

for a profit of 47 cents a share on revenue of $763.5 million.

Tuesday's move put the stock down 12% in the past year, although it has bounced since scraping a 52-week low of $28.37 on Jan. 20. The sell side is in wait-and-see mode right now with 19 of the 30 analysts covering Southwestern at either hold (16) or underperform (3).

"With gas accounting for 99% of 2010 production and 100% of proved reserves, the firm is subject to gas price volatility with no options to shift to oil or liquids-rich production to take advantage of a pricing advantage of oil over natural gas," Morningstar analysts caution, adding that "Southwestern has better-than-average financial flexibility thanks to careful debt management during the last five years during the build up of its Fayetteville Shale operations."

Check out TheStreet's quote page for Southwestern Energy for year-to-date share performance, analyst ratings, earnings estimates and much more.

>>To see these stocks in action, visit the

3 Stocks Investors Are Selling But Should Be Buying

portfolio on Stockpickr.

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Written by Andrea Tse in New York.

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Andrea Tse


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