- Last month’s selloff has resulted in many oversold stocks, creating a solid opportunity for bottom-fishing investors.
- Bank of America (BAC): Oversold given rising interest rates mean rising earnings for this banking giant.
- DaVita (DVA): Last month’s healthcare stock selloff has pushed this Warren Buffett favorite to too low of a valuation.
- Fox Corporation (FOX): “Old school” media company that may be more resilient than the market gives it credit.
- Laboratory Corp. of America (LH): Lab testing giant could bounce back once focus on fading pandemic tailwinds fades.
- Netflix (NASDAQ:NFLX): Despite “value trap concerns,” this hard-hit FAANG stock could make a comeback.
- Southern Copper (SCCO): The market may be underestimating how long copper prices stay high.
- United Parcel Service (UPS): Concerns about softening demand for shipping services may be overblown.
Concerns about soaring interest rates sent stocks tumbling during April. For speculative growth stocks, you can argue this move lower was justified. But when it comes to more reasonably priced names, many of them have become oversold stocks.
That is, with the market’s latest drop, they’ve gone from fair value, to undervalued. It’s unclear whether these names will see more volatility. As of this writing, stocks are moving higher. That could suggest that, similar to what played out in March, stocks could experience another relief rally, especially now the Federal Reserve has hiked interest rates by 50 basis point (0.5%) in May.
Then again, more wild moves may be in store. Future rate hikes, unexpected today, could drive further market declines. Still, while stocks, including oversold names, may not have fully bottomed-out, you may still want to buy.
It may take time for these seven oversold stocks to move higher. Even so, each of them could produce solid long-term returns for those buying them at today’s prices.
|BAC||Bank of America Corporation||$37.46|
|LH||Laboratory Corporation of America Holdings||$253.14|
|SCCO||Southern Copper Corporation||$62.58|
|UPS||United Parcel Service, Inc.||$179.60|
Oversold Stocks to Buy: Bank of America (BAC)
Last month’s fear, uncertainty, and doubt (FUD) has resulted in Bank of America (NYSE:BAC) giving back all of its late 2021/early 2022 gains. As a result, the money center bank today trades for a little over its 52-week low.
This comes despite the fact that rising interest rates are a positive for BAC stock. Why? For banks, rising interest rates mean greater profitability, as net interest margin rises. Per analyst consensus, it’s estimated to see its earnings rise by around 17% next year.
Trading at a low multiple to next year’s earnings (9.5x), now may be the time to buy. Once current storms pass, its rising profitability will likely become the main driver for shares. If it can deliver earnings in-line or above expectations, getting back to its highs (around $50 per share) won’t be a challenge. That’s a 34% potential gain based on today’s prices.
Besides market volatility, an earnings miss for HCA Healthcare (NYSE:HCA) put pressure on other health care services stocks. That’s why dialysis center operator DaVita (NYSE:DVA) experienced such a sharp drop on April 22, falling by around 9.2%.
Continuing to move lower, DaVita is now down for the year, albeit slightly. Already reasonably-priced before its drop, it’s a bargain at today’s prices. At least, relative to earnings estimates for next year. The sell-side’s 2023 earnings forecast calls for it to earn $10.39 per share. Even if it falls to the low end of estimates ($9.44 per share), it’s still trading at a low forward valuation.
A longtime Warren Buffett stock, this is a high-margin business with consistent profitability. Yet instead of being a “wonderful business at a fair price,” you can say DVA stock is a “wonderful business at a wonderful price.”
Oversold Stocks to Buy: Fox Corporation (FOX)
Made up of the media assets not purchased by Disney (NYSE:DIS) when it acquired 21st Century Fox back in 2019, Fox Corporation (NASDAQ:FOX) isn’t exactly a hot name on Wall Street. Fox has been pushed lower due to the recent market volatility.
It’s also due to concerns that legacy media companies like this one (whose assets include the Fox broadcasting network, as well as the Fox News Channel) are “melting ice cubes” as streaming supplants television. However, with FOX stock, these concerns may be overblown. At least, that’s the takeaway from a recent bullish rating from analysts at MoffettNathanson.
The firm gives shares a “buy” rating, and a $50 per share price target. Fox’s linear TV properties, focused on news and sports programming, continue to perform well. Its move into ad-supported streaming (via platforms like Tubi) has also been successful. Trading for less than 15x earnings, consider it a buy.
Laboratory Corp. of America (LH)
Best known as LabCorp, Laboratory Corp. of America (NYSE:LH) is a provider of both lab testing and drug development services. During the pandemic, it experienced big growth in sales and earnings, thanks to widespread Covid-19 testing.
But as the pandemic enters the rearview mirror, earnings have taken a hit. The loss of its pandemic-era tailwind continues to put pressure on LH stock. That said, there may now be too much focus on this negative factor. At today’s prices, with the stock trading at around 12.5x earnings, the impact of falling earnings may already be accounted for in its valuation.
Even as Covid testing drops, the rest of LabCorp’s business remains stable. Much like its peer Quest Diagnostics (NYSE:DGX), in time focus will shift back to the strength of its business outside of Covid testing. This could result in a recovery for the stock.
Oversold Stocks to Buy: Netflix (NFLX)
First off, I’ll admit that among the oversold stocks listed above and below, Netflix (NASDAQ:NFLX) may be the one most at risk of being a value trap. Shares in the streaming giant have been hammered hard this year. Especially during April, as news of subscriber losses caused it to experience a severe plunge in price.
As a result, NFLX stock has become seemingly low-priced. It trades for just 18.4x earnings. Yet, this is where the value trap concerns come into play. While it may look “cheap,” many are concerned shares could get “cheaper.” With subscriber numbers falling, it may have hit a wall in terms of revenue and earnings growth.
However, it may have a path to recover. Whether from rolling out an ad-supported version of its platform, or from improving its programming strategy, even modest improvements could shift negative sentiment for Netflix shares back to positive.
Southern Copper (SCCO)
After spiking thanks to the big jump in commodities prices following Russia’s invasion of Ukraine, it’s no surprise excitement for Southern Copper (NYSE:SCCO) stock has calmed down over the past month. Since March, copper prices have pulled back.
Concerns also run high that copper prices, on a tear since 2020, could keep dropping. Why? A possible drop in demand, if rising interest rates cause economic activity to slow down. However, as Louis Navellier argued last month, it’s possible the market is underestimating how long the copper boom lasts.
The rise of electric vehicles, which require copper for their batteries, could help keep demand steady. With this, copper prices could avoid additional declines. In turn, enabling this copper producer to maintain both its current level of earnings, and its current high dividend payout (forward yield of 6.16%). This may mean a recovery down the road for oversold SCCO stock.
Oversold Stocks: United Parcel Service (UPS)
Transportation stocks like United Parcel Service (NYSE:UPS) have been falling due to concerns about softening demand for their services. That’s why, despite delivering earnings results ahead of estimates last month, shares have continued to move lower.
But it’s possible that the market has overreacted and UPS stock has become oversold. As my InvestorPlace colleague Dana Blankenhorn recently argued, this selloff has pushed shares down to a low valuation. Low relative to its current results, and low relative to its long-term prospects. Thanks to the efforts of its CEO, Carol Tomé, the company has made the right moves in terms of keeping up with trends in the industry.
In Blankenhorn’s view, it’s well-positioned to keep competition from both FedEx (NYSE:FDX) and Amazon (NASDAQ:AMZN) at bay. With a high dividend (3.41% forward yield) to boot, it may be time to lock down a position, following the stock’s recent weakness.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.