The stock market just turned in a dreadful first half of the year. The S&P 500 fell more than 20%, and the tech-heavy Nasdaq Composite slid almost 30%.
Not surprisingly, with the indexes themselves down that badly, some individual stocks are getting absolutely clobbered. Many S&P 500 stocks fell at least 40%, with a fair number losing half their value so far in 2022. The declines are, in many cases, staggering.
While not everything that’s down has strong prospects of bouncing back imminently, there are some wildly oversold S&P 500 stocks right now. As sentiment picks up, expect swift recoveries in many of the most punished stocks. For today, here are seven oversold S&P 500 stocks down at least 40% year-to-date with a good chance at a second-half comeback.
|SWK||Stanley Black & Decker||$113.22|
Netflix (NASDAQ:NFLX) has been the single worst-performing stock in the S&P 500 Index this year. NFLX stock has, stunningly, lost 65% of its value just since Jan. 1.
With many out-of-home entertainment options now reopening, Netflix’s streaming growth numbers have ground to a halt. This isn’t totally unexpected. And, Netflix is hardly the only streaming company dealing with a sudden loss of momentum.
Still, it has been a shockingly abrupt turn in sentiment around the company. Now, investors are demanding better profitability metrics from the company and a more disciplined approach to new content spending. That’s reasonable and makes sense.
Let’s not lose sight of the bigger picture though. The company is generating $30 billion per year in revenues. That’s a tremendous level of success with its user base. Meanwhile, with the stock price crash, the whole company has a market capitalization of less then $80 billion. That seems much too low.
Under Armour (UA)
Athletic apparel maker Under Armour (NYSE:UA) is not having a winning season; shares are down by more than half year-to-date. Like many companies selling consumer products, Under Armour has struggled with inflation and supply chain pressures.
More broadly, Under Armour has been focused on aggressive cost controls in recent years. That’s beneficial for the bottom line, but may have caused the company to lose a step against more nimble rivals. However, change is on the way. CEO Patrik Frisk stepped down in June.
Now, with sizable short interest in the company while shares trade at less than 20x forward earnings, UA stock could pop on any positive news.
Ilumina (NASDAQ:ILMN) is a pioneering lab tools and diagnostics company. It is well-known for its instrumental role in the sequencing of the human genome at an affordable price. By 2014, researchers could sequence an entire human genome for just $1,000 — down from $1 million less than a decade prior.
Ilumina continues to earn enviable profit streams from its ongoing broad sequencing business. In recent times, it has expanded and deepened its business into more specific and targeted lines of genetic testing, such as screens for cancer.
The company has historically traded for a massive valuation, given its high-tech operations and massive long-term demographic tailwinds for the industry. Recently, however, shares have pulled back by more than half, putting ILMN stock at a more approachable 45 times forward earnings. That’s still not dirt cheap by any means, but it’s a more attractive entry point for what has often been one of the S&P 500’s most appealing and most highly valued stocks historically.
IDEXX Laboratories (IDXX)
America’s love affair with pets is well-known. And it’s only continuing to grow. As many people put off raising children and reduce the size of their families, cats and dogs have often taken the companionship role instead. With folks caring more and more about their pets, spending on these animals has exploded in recent years. Throw in the pandemic, during which people adopted pets at record rates, and the pet industry has enjoyed a boom.
That includes IDEXX Laboratories (NASDAQ:IDXX), which is the leader in making pet diagnostic products. In the old days, people would often put a pet to sleep once it became seriously ill. Now, folks are willing to treat pets for cancer, diabetes and other complicated diseases, greatly expanding the animal health market. IDXX stock rode that wave tremendously with shares rising from $40 in 2012 to as high as $700 last year.
However, IDEXX’s valuation got out of hand at the peak, topping 60x earnings for much of last year. In addition, as the economy has reopened, the unprecedented wave of pet adoptions has slowed. The pet industry will remain a long-term winner, however. Don’t let the brief 2022 slowdown concern you too much. Meanwhile, with shares down by half off their peak, IDXX stock is now a great long-term investment being offered at a reasonable price.
Stanley Black & Decker (SWK)
Power tools maker Stanley Black & Decker (NYSE:SWK) has gotten drilled in 2022. Now down by more than 40% on the year, the firm is set to build a sturdier framework for the rest of 2022.
The company’s selloff comes for the same reason that many other home-related companies have dropped. That is that investors don’t believe 2020 and 2021’s boom sales will continue going forward. SWK stock is trading very cheaply on both 2021 results and 2022 projections; on the later front, it’s at just an 11x price-to-earnings ratio today.
However, to some extent, people already satisfied their demand for Stanley Black & Decker products while they were stuck at home during the pandemic. Presumably, a lot of future sales were already pulled forward into 2020 and 2021. That’s all well and true.
Here’s the thing though. SWK stock is now trading at just $113; whereas, it sold for $160 in early 2020. It makes no sense for shares to trade that far below pre-pandemic levels. Meanwhile, the company is a Dividend King with more than 50 years of consecutive dividend hikes. The company may be out of favor with short-term traders now, but growth and income investors should seize the broader opportunity.
Ford (NYSE:F) is one of the world’s largest and most profitable automobile companies. It is also quickly emerging as a leading player in the electric vehicle market. The Ford F-150 Lightning, in particular, has the makings of being a major hit. The company has already boosted production capacity twice for the model given massive preorders.
Despite Ford’s operational progress, its stock price has taken a different path. At less than $13 today, F stock has now dropped by more than half from its 2021 high.
This makes little sense given the company’s earnings. Analysts project that the company will put up $1.93 per share in earnings this year, leaving the stock at a less than 6x P/E ratio. And, despite the dour economic rumblings at the moment, analysts see Ford growing its earnings further in 2023 and 2024. In other words, the sky isn’t falling for Ford, even if the stock price might give off that impression at the moment.
The housing market is set to roll over. That much does appear to be clear. Mortgage rates have gone up so dramatically that is seems some drop in home prices is virtually inevitable as homebuyers adapt to more expensive financing.
However, the doom and gloom may be getting out of hand. American consumers still have strong balance sheets and rising incomes. And demographics are great for housing as America badly lagged in housing construction since 2008 leaving a ton of pent-up demand. Throw in the large millennial generation, which is now seeking improved housing options, and interest rates won’t keep the market down too long.
Meanwhile, homebuilders have sold off to jaw-dropping lows. Lennar (NYSE:LEN) shares, for example, are going at less than both 5x trailing and projected forward earnings. The housing market would have to absolutely tank to justify a P/E ratio anywhere near that low.
On the date of publication, Ian Bezek held a long position in SWK stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.