The best way to beat the market is to be at least somewhat contrarian. If you do exactly the same as everyone else then you're going to get exactly the same results as everyone else.
As we know, achieving average market returns for minimal fees is actually an excellent way of doing things over the long-term. iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS) are both excellent long-term passive options.
However, to beat those market returns you need to pick growth shares that are going to beat the market over time and/or cheap shares.
Here are two contrarian picks that may be market-beaters over the next two years:
Greencross Limited (ASX: GXL)
Greencross has seen its share price fall by nearly a third over the past year. It really hasn't been a good few years for Greencross!
A few years ago it was probably trading at too high a valuation for how much organic growth it was going to achieve. These days sentiment is going against the pet giant with Amazon now starting to sell pet supplies in Australia and the standalone vet segment facing difficulties.
But, each year the revenue keeps growing – pet owners continue to use it in bigger numbers each year. If Greencross can hold the profit margins steady and keep increasing revenue then investor sentiment would likely recover.
It wouldn't take much for Greencross to beat the market at this price considering it's only trading at 11x FY19's estimated earnings with a grossed-up dividend yield of 6.1%.
The natural beauty business has seen its share price fall by nearly 30% over the past year.
The old management's desire to keep expanding through acquisitions was not well received by the market and their ill-fated takeover attempt with Bain Capital was unsuccessful.
However, what they left behind is a solid business with Sukin sold in many different countries and the potential for significant expansion into the USA. There is also good potential for Mineral Fusion and Andalou Naturals products to be sold in the geographies that Sukin is.
Management also believe that there are material synergies that can be achieved with cost savings through the various acquisitions. Particularly with its facility in Victoria for production.
Most of the above things are BWX-specific positives. The natural beauty market as a whole is growing at an even faster rate than the 'regular' beauty market.
BWX is trading at less than 20x FY18's underlying earnings per share and grew those earnings by 15% in what was meant to be a difficult year.
Foolish takeaway
I believe that it will only take a decent result for both businesses in the next reporting season for sentiment to turnaround. Indeed, there is a decent chance both of them could report profit growth in FY19 that equates to them trading with a PEG ratio of less than 1 at these levels.
Out of the two, I'd prefer to buy shares of BWX because of its potential global growth.
