Stocks ended the third quarter on a sour note. The Federal Reserve’s aggressive posture against inflation combined with soaring interest rates have investors taking defensive measures.
But it’s not time to give up on the stock market. In fact, thanks to the recent selling, bargains are springing up across many S&P 500 stocks.
Let’s examine three that will benefit from current market conditions and rally heading into 2024.
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) is one of the big banks that is thriving amid the industry’s correction. That’s because Wells Fargo did not aggressively expand its balance sheet or buy overvalued securities over the past few years.
True, investors have shunned nearly all financials stocks this year amid unprecedented volatility in the interest rate markets. Banks that were positioned poorly, like First Republic and Silicon Valley, ended up going bust. And others are suffering from falling profitability and strained balance sheets at the present time.
Meanwhile, Wells Fargo has positioned its balance sheet to earn far more profits as interest rates rise. And those rates are normally beneficial to the banking sector as a whole. For firms like Wells Fargo that managed their risks and exposures properly, that remains true in 2023.
Specifically, Wells Fargo’s net interest margin (NIM), the spread between its loan interest and deposit payments, has soared from 2.2% in Q2 of last year to 3.1% today. With a near 50% jump in core profitability on its loan book, it’s no wonder that Wells Fargo is reporting rising earnings. WFC stock hasn’t yet snapped out of the industrywide doldrums. As a result, shares go for just eight times forward earnings today.
Charles River Laboratories (CRL)
Charles River Laboratories (NYSE:CRL) is a leading healthcare company focused on providing lab tools and services related to pharmaceutical drug development.
Historically, it’s been the dominant player in animal models. Specifically, Charles River procures, breeds, and distributes lab rats, mice, rabbits, and non-human primates. The last one got Charles River in trouble, as the company was implicated in an investigation into alleged macaque smuggling in Cambodia. However, as of last quarter, Charles River has been able to resolve its sourcing issues around non-human primates.
More broadly, CRL stock has slumped amid the slowdown in the biotech industry. With smaller biotech companies struggling to obtain funding, Charles River is experiencing less trials and revenue-generating business. Yet, it’s only a matter of time until biotech funding rises again, given the priority to find cures for rare diseases.
CRL will inevitably be part of those future cures. In fact, the company was involved in developing more than 80% of all drugs that received FDA approval since 2020. In effect, Charles River is a tax on the entire biotech industry, with their consistent postings of compounded earnings per share growth rate in the teens since the turn of the century.
Thanks to the recent scandal and biotech industry’s slump, CRL shares are now on sale at an unusually low 18 times forward earnings.
Keysight Technologies (KEYS)
Keysight Technologies (NYSE:KEYS) is a company that provides testing, product quality, and design solutions to technology companies. The firm has an interesting history.
Keysight sprung up originally as Hewlett-Packard‘s Test & Measurement division more than half a century ago, and was ultimately spun off from Agilent (NYSE:A) into its own publicly-traded entity in 2014.
KEYS stock has been incredibly successful over the past decade. Since 2014, shares jumped from $30 to a peak of more than $200. However, Keysight has fallen amid a slowdown in telecom and information technology spending over the past year. That has led KEYS stock to slide back to around $130 today.
The weakness makes sense, as Keysight is heavily involved in quality control and testing for telecom companies. With 5G rollouts seeing an underwhelming debut as compared to expectations, that has cast a shadow on industry vendors. Other Keysight segments such as services for edge computing and RFID functions have slipped as demand levels off following an unusually robust 2021 and 2022.
Indeed, the market is blowing the situation way out of proportion. KEYS stock is down to 16 times forward earnings, which is quite the discount for a tech company that has reliably posted double-digit earnings growth. It’s only a matter of time until telecom spending picks back up given the ever-growing demand for mobile data.
Also, Keysight is active in emerging growth fields such as AI and next-generation semiconductors. Investors should take advantage of the current dip in KEYS stock.
On the date of publication, Ian Bezek held a long position in KEYS, CRL, and WFC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
