It’s not especially surprising that the third quarter has been a lousy one for the stock market.
Summertime is notorious on Wall Street as a time when most investors prefer to be out enjoying the beach and spending time with their family — not flipping through annual reports hunting for stocks to buy.
What was a little surprising about the third quarter this year was the sudden and unpredictable volatility as China’s stock market meltdown quickly spread to the Western Hemisphere. U.S. indices experienced their first 10% correction since the debt ceiling showdown of 2011, and the S&P 500 is off nearly 7% in Q3 with just a few trading days left to go.
The good news for investors? If you’re looking for oversold stocks to buy now, Wall Street’s practically oozing with them.
Here are 10 stocks to buy as they seem particularly destined for a rebound:
10 Rebound Stocks to Buy for Q4: IAC/InterActiveCorp (IACI)
Market Cap: $5.6 billion
Performance in Q3: -15%
Shares of diversified tech and media IAC/InterActiveCorp (IACI) got slammed in the third quarter, more than doubling the 6% losses of the S&P 500.
That’s great news for value investors looking for oversold stocks to buy — and bad news for IACI bears.
I don’t see IACI stock going much lower, especially as the company cashes in on the success of online dating by taking The Match Group public in an IPO in the fourth quarter of this year. The Match Group includes major online and mobile dating companies like Match.com, Tinder, OkCupid, and PlentyOfFish.
I have a feeling that upon its fourth-quarter IPO, The Match Group will be matching with plenty of investors betting that the online dating industry will be compatible with their portfolio over the long term. That means good things for IACI, which will retain at least an 80% stake in the company.
But until Match goes public, buying IACI stock is the best way to invest in Tinder.
10 Rebound Stocks to Buy for Q4: Gilead Sciences (GILD)
Market Cap: $147 billion
Performance in Q3: -14%
Gilead Sciences (GILD), one of the largest biopharmas in the world, also got hit hard in the third quarter. But its size, attractive valuation and 2% dividend make GILD one of the best stocks to buy in the stock market today.
Prone for a comeback, GILD trades at a forward P/E below 11, far below the average S&P 500 stock, which goes for about 16.5 times next year’s earnings. For a company with revenue and earnings expected to rise by 26.6% and 44% respectively this year, it might seems like GILD deserves a dramatically higher multiple. Here’s the thing, though:
“That growth, of course, is being driven by sales of relatively new hepatitis C drugs Harvoni and Sovaldi, both of which come with a jaw-dropping four-figure price tag.
While observers are quick to point out that a strong 2015 has largely quelled any hope for sales and earnings growth in 2016, the company may have something new up its sleeve. Gilead recently raised $10 billion via a debt offering, suggesting an acquisition could be on the way.”
10 Rebound Stocks to Buy for Q4: GoPro (GPRO)
Market Cap: $4.3 billion
Performance in Q3: -38%
Let me just assure you of one thing: No other stock on this list has suffered a third-quarter meltdown as severe as GoPro‘s (GPRO).
This one was legendary. The catalyst that had everyone selling actually started with one of GoPro’s suppliers: Chipmaker Ambarella (AMBA) said its own revenues in the current quarter wouldn’t be too impressive due to lower demand from its clients in wearables.
That sentiment didn’t sit well with GPRO investors, and the stock went from modestly priced to dramatically oversold virtually overnight.
If you’re looking for beaten-down growth stocks to buy, GPRO is your play. The stock’s forward P/E is 16.2, cheaper than the S&P itself. This despite 20.4% and 16.9% 2016 growth rates for revenue and EPS, respectively.
10 Rebound Stocks to Buy for Q4: Kinder Morgan (KMI)
Market Cap: $65 billion
Performance in Q3: -23%
Now, if you’re looking for high-paying dividend stocks to buy for the long-term, you can’t go wrong with Kinder Morgan (KMI). KMI boasts an absolutely absurd 6.7% dividend yield — a payout that’s more than triple what you can currently get from 10-year Treasuries.
InvestorPlace Contributor Aaron Levitt is a big fan of KMI stock:
“Supporting that hefty dividend are the cash flows from 84,000 miles worth of pipelines and gathering systems, plus more than 165 terminals. It owns tanker ships, processing equipment and a whole host of other midstream assets.
Basically, if it’s an energy commodity, KMI moves it.
What’s great about KMI’s huge asset base is that the vast bulk of it acts like a toll taker, just collecting fees from producers.”
10 Rebound Stocks to Buy for Q4: Wayfair (W)
Market Cap: $3.1 billion
Performance in Q3: -2%
Although 5% doesn’t sound like much of a drop (it’s not, the S&P is off 7% in the third quarter already), Wayfair’s (W) fall from its peak was much more pronounced. Shares are actually down more than 35% from their mid-August highs.
What precipitated the steep selloff? Well, the sudden collapse of all things China caused many investors to slam on the brakes and reallocate into “risk-off” mode. Wayfair, being the unproven, unprofitable online home goods retailer that it is, justifiably got slammed by Wall Street.
Personally, I’m a huge fan of Wayfair — especially at current levels — and I own the stock myself. Last quarter was a breakthrough quarter for the company, as it demonstrated its enormous SG&A expenses were paying off. Repeat customers accounted for 56.6% of orders last quarter, up from 51.6% the previous quarter. Revenues shot 66% higher, and Wayfair’s per-share loss was about half what Wall Street expected at 15 cents.
It’s incredibly important that repeat customers are playing a larger role in the business, because it means Wayfair won’t need to spend as much money to reach out to those customers, who will instead return on their own.
10 Rebound Stocks to Buy for Q4: NXP Semiconductors (NXPI)
Market Cap: $22.2 billion
Performance in Q3: -10%
NXP Semiconductors (NXPI), a Dutch chipmaker, has seen its share price languish recently. Part of its weakness was simply due to its connections to the Chinese end-market. Apple (AAPL) is one of NXP’s largest customers, and Apple’s expansion plans in China act as a major narrative for both stocks.
As investors, we need to use the whims and mispricings of Mr. Market to our advantage. I strongly believe Mr. Market’s giving us just such an opportunity today, and if you’re looking for undervalued stocks to buy, it doesn’t get much better than NXPI.
I outlined five reasons NXPI stock is a screaming buy earlier this month. The reasons include its killer valuation, a pending merger with a major competitor, an impressive array of end customers, two world-changing technologies and improving margins.
Sounds like a buy to me.
10 Rebound Stocks to Buy for Q4: IBM (IBM)
Market Cap: $143 billion
Performance in Q3: -10%
You simply cannot go wrong with any stock that figures prominently in Warren Buffett’s portfolio. IBM (IBM) is one such stock, which makes it special enough. But it’s also unique because the Oracle of Omaha had never invested so heavily in a tech stock before shocking the investment world and pouring $10 billion into IBM in 2011.
It should be said, yes, that Buffett’s investment hasn’t exactly paid off yet. Thirteen straight quarters of declining revenue doesn’t make for great stock returns; shares were sitting around $190/share when Buffett announced his investment. Today, they sit at $146.
That said, IBM’s 3.6% dividend, a forward P/E ratio of less than 9 and a focus on the fields of tomorrow (like artificial intelligence and the cloud) all make this a worthwhile pickup for the fourth quarter.
10 Rebound Stocks to Buy for Q4: Schlumberger (SLB)
Market Cap: $92.5 billion
Performance in Q3: -15%
If you’re looking for a contrarian play, Schlumberger (SLB) is a good domestic choice. Shares of the oil services giant are down 28% in the last year as falling oil and natural gas prices have put pressure on producers to cut costs and reduce output.
Easily the biggest development of the year for Schlumberger was its recent acquisition of Cameron International (CAM), a $12.7 billion deal that should close in early 2016. The new combined company will double down on Schlumberger’s oil field and services expertise, and the deal should start adding to SLB’s bottom line in no more than a year.
Of course there will be “synergies” that are realized in the acquisition, but SLB seemed more interested in highlighting the technical prowess and portfolio of new equipment it would be picking up.
If oil prices ever do decide to rise, you can be sure SLB will come along for the ride.
10 Rebound Stocks to Buy for Q4: YY (YY)
Market cap: $3 billion
Performance in Q3: -21%
Here’s the second unashamedly contrarian stock to buy for Q4: the Chinese social platform YY (YY).
As an investor, when I hear the word “Chinese” I usually recoil and make a bee-line for the closest socially acceptable place to puke my brains out. I don’t trust the Chinese government, I don’t trust the Chinese stock market and I’m even beginning to look skeptically at mu shu chicken.
Still, I keep an open mind, and I’m willing to believe that a handful of Chinese stocks, like YY, are oversold and undervalued. The company has been doubling revenues year after year as the growth of the Chinese middle class increases its customer base. Revenues are expected to soar 47% this year and 31% in 2016.
And yet, YY stock trades at just 12.5 times forward earnings.
I wouldn’t put YY at the top of your list of stocks to buy, but if you’re on the fence about China, YY could reap big rewards for the patient investor.
10 Rebound Stocks to Buy for Q4: Qualcomm (QCOM)
Market cap: $84 billion
Performance in Q3: -14%
Last but not least, chipmaker Qualcomm (QCOM) is long overdue for a reversal.
It’s well-known for being an Apple supplier, but the company’s manufacturing capabilities make it one of the only companies on the globe able to make chips for both Apple and Samsung (SSNLF).
Allow me to amend that statement just slightly. Qualcomm may be large enough to supply both Apple and Samsung, but QCOM was rumored to have lost Samsung as a customer for its Samsung S6. However, longtime value investor and editor of investment advisory service Profitable Investing, Richard Brand, notes how QCOM’s newest Snapdragon chip, the 820, could win Samsung back:
“The 820 has been designed to run ‘always on’ apps — like step counters or calorie burners — more efficiently and with less power drain. The DSP allows these functions to run without having to power the core processor. These types of apps are in the vanguard of the Internet of Things sensors that will be used in everything from smart clothing to smart watches to smarter cars.”
Lo and behold, Samsung might just throw the Snapdragon 820 into its Galaxy S7.
With a 3.6% dividend yield to keep investors comfortable, Qualcomm stock can pay you to wait as the company returns to glory.
As of this writing, John Divine was long AAPL, AMBA and W, and held Oct 2015 $85 NXPI call options, Jan 2017 $90 NXPI calls, Jan 2017 $95 NXPI calls, Jan 2017 $105 NXPI calls, Jan 2018 $110 NXPI calls, and Jan 2017 $70 IACI calls. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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