The market selloff that began in August is accelerating, with the technology-laden Nasdaq Composite Index having fallen into correction territory, which means it is down over 10% from its peak reached earlier this year. The Nasdaq officially entered a correction on Oct. 25 when it declined 2.4% to 12,821.22, bringing it 12% lower than its high for the year of 14,358.02 set on July 19. The Nasdaq is now down more than 20% from its record high of 16,057.44 reached on Nov. 19, 2021, when the pandemic rally hit its zenith.
The other major U.S. indices also continue to sink, with the benchmark S&P 500 down 10% since Aug. 1. While disheartening, investors should remember selloffs present an opportunity to buy great stocks that have become oversold and undervalued. While some stocks are being brought down to more reasonable valuations, many are being dragged lower with the broader market and are sure to recover quickly once calmer heads prevail. Some notable names have even sold off despite reporting strong third-quarter financial results. Here are three very oversold stocks to buy in Q4.
Alphabet (GOOG, GOOGL)
The reaction to Google parent company Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) third-quarter financial results has been a little extreme. The tech giant beat Wall Street forecasts in just about every category. The company reported overall revenue growth of 11%, returning to double digits for the first time in more than a year. Earnings per share (EPS) of $1.55 was better than the $1.45 expected. Revenue totaled $76.69 billion compared to the $75.97 billion expected. The strong print was driven by a rebound in online advertising, with Alphabet reporting ad revenue of $59.65 billion, up nearly 10% from $54.48 billion a year ago.
Yet Alphabet says its cloud-computing revenue came in roughly $20 million lighter than Wall Street forecasts at $8.41 billion, and the stock is down 12% in two days. This is a classic earnings overreaction and completely unjustified. It also overlooks the fact that Alphabet reported several pieces of good news related to its cloud unit for Q3, namely that its revenue grew 22% from a year earlier, double the rate of expansion for the company as a whole. And the cloud-computing unit swung to a profit of $266 million in Q3 of this year after losing $440 million during the same period of 2022.
The current drop in GOOG stock has more to do with the yield on the 10-year Treasury being near 5% than Alphabet’s Q3 print. Investors would be smart to buy the dip in this first-class tech stock.
Danaher (DHR)
Shares of medical device manufacturer Danaher (NYSE:DHR) were slipping before the company reported its Q3 financial results. However, DHR stock fell 6% immediately after the print, bringing its decline over the last month to 12%. As with Alphabet, investors turned on Danaher despite the company announcing numbers that beat Wall Street forecasts across the board. Danaher reported Q3 EPS of $2.02 on revenue of $6.87 billion. That was well ahead of the $1.81 a share and revenue of $6.6 billion that analysts had penciled in for the company.
However, even though Danaher’s Q3 results beat Wall Street estimates, they were lower than a year earlier, sending DHR stock down. In the same period of 2022, the company reported earnings of $2.56 a share and revenue of $7.66 billion. Danaher also gave muted guidance, saying it anticipates its full-year 2023 revenue to be down slightly year-over-year. The selloff since the Q3 print on Oct. 24 doesn’t reflect several pieces of good news. First, the company achieved higher revenue for its respiratory testing equipment, reversing a previous downturn. And second, Danaher recently completed the successful spinoff of its water testing unit into a new company called Veralto (NYSE:VLTO).
While DHR stock is down 17% this year, it has gained 116% over five years and is up about 300% over the last decade. It would be foolish to bet against this company and its future.
Occidental Petroleum (OXY)
What does Warren Buffett know that other investors don’t? It’s a question more than a few people have tried to answer. When it comes to oil producer Occidental Petroleum (NYSE:OXY) and its stock, Buffett appears to know that it’s a deal at current levels. With OXY stock down 12% over the past 12 months, including a 5% drop in the last week or so, Buffett has been buying. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), Buffett’s holding company, bought an additional 3.9 million shares of OXY stock recently as the price slid lower, lifting his total stake in Occidental Petroleum to 228 million shares worth about $14.5 billion.
Following the latest purchase, Berkshire Hathaway now owns 25.8% of Occidental Petroleum. Buffett paid an average price of $63 a share for his latest purchase and seems to aggressively buy OXY stock each time the price falls below $65. Berkshire’s increased stake in Occidental Petroleum also comes amid a wave of consolidation in the U.S. energy sector, with Chevron (NYSE:CVX) recently bidding $53 billion to acquire its rival, Hess (NYSE:HES). Could Occidental Petroleum be in play? There are rumors swirling. There’s also speculation that Buffett plans to buy all of Occidental Petroleum himself.
Whatever the ultimate outcome, OXY stock looks nicely valued trading at 10 times future earnings and with a quarterly dividend payout of 18 cents a share.
On the date of publication, Joel Baglole held long positions in GOOGL and DHR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
