Oversold stocks is our topic for today. There is no point in sugarcoating this year’s volatility on Wall Street. Many stocks have fallen precipitously. Meanwhile, many darlings of the pandemic have lost significant value in the past six months.
The tech-heavy Nasdaq 100 index has fallen 28% year-to-date (YTD), while the benchmark S&P 500 index has dropped 19% so far this year. Moreover, many growth stocks have tumbled more than 50% since the beginning of the year.
As a result, a number of high-quality shares are trading below fair value.
With consumer sentiment at a record low and inflation at 40-year highs, rising interest rates have added salt to the wound. So naturally, investors are on the hunt for oversold stocks with bargain valuations that could soar in value once optimism returns to the stock market.
While it is crucial to be well-positioned for the next bull rally, investors shouldn’t buy oversold stocks simply because they have fallen a long way. Stocks can experience further sudden declines before the pessimism subsides.
As the saying goes, liquidity is king, especially during bear markets.
With that information, here are seven oversold stocks to buy.
| SQ | Block | $64.97 |
| BLUE | Bluebird Bio | $4.82 |
| CCI | Crown Castle | $171.77 |
| ETSY | Etsy | $85.94 |
| META | Meta Platforms | $169.77 |
| SWKS | Skyworks | $95.53 |
| TWLO | Twilio | $88.70 |
Block (SQ)
52-Week Range: $56.01 – $289.23
Financial technology (fintech) play Block (NYSE:SQ) focuses on diverse solutions for point of sale (PoS) payments, peer-to-peer (P2P) payments and cryptocurrency. Its Square ecosystem offers an integrated suite of commerce solutions for especially small- to mid-sized businesses.
Block announced first-quarter results on May 5. Revenue declined 22% year-over-year (YOY) to $3.96 billion. Net loss came in at 38 cents per diluted share, compared with a net income of 8 cents per diluted share in the prior-year quarter. Cash and equivalents ended the period at $4 billion.
Gross profit in the first quarter stood at $1.3 billion, up 34.4% year over year. The Square ecosystem accounted for $661 million of this figure. Investors are pleased that Block is focused on expanding its omnichannel software offerings.
Meanwhile, its personal finance app, Cash App, has around 50 million users.
SQ stock has tumbled 60% YTD, trading near its two-year lows set on June 17. Shares are trading at 84 times forward earnings and just 2 times sales. Wall Street’s 12-month median price forecast is at $140.
Bluebird Bio (BLUE)
52-Week Range: $2.87 – $20.43
Biotech group Bluebird Bio (NASDAQ:BLUE) focuses on transformative gene therapies for severe genetic diseases. The company released Q1 metrics on May 9.
Revenue increased by 111% YOY to $1.9 million. Net loss came in at $1.66 per diluted share, down from a loss of $3.07 per diluted share a year ago.
Cash and equivalents ended the quarter at $312 million, including restricted cash of approximately $45 million. Meanwhile, the company implemented cost-cutting measures, estimating potential cost savings of $160 million over the next few years.
In 2021, the company submitted two gene-editing therapies to the Food and Drug Administration (FDA) for approval. The first was beti-cel for people with beta-thalassemia who require regular red blood cell transfusions. The second was eli-cel for cerebral adrenoleukodystrophy, a rare neurodegenerative disease that primarily affects young children.
These treatments are expected to gain approval in August and September 2022, respectively.
BLUE stock has sunk 52% YTD and 76% over the past year. Shares are changing hands at a lofty 64 times sales. Analysts’ 12-month median price forecast stands at $8. That’s because, like most small biotech plays, investing in Bluebird Bio is speculative and not appropriate for all portfolios.
Crown Castle International (CCI)
52-Week Range: $153.70 – $209.87
Crown Castle (NYSE:CCI) is the largest pure-play communications real estate investment trust (REIT) in the U.S. It operates more than 40,000 mobile towers and 55,000 small cell nodes. Major wireless carriers rely on its communications infrastructure to provide mobile data to customers.
The REIT reported Q1 results on April 20. Revenue increased 15% YOY to $1.58 billion. Adjusted funds from operations (FFO) came in at $1.87 per share, up 9% from $1.71 per share a year ago. Cash and equivalents ended the period at $482 million.
Since the early days of the pandemic, we have witnessed the rapid increase in 5G mobile internet, video streaming and online shopping. As a result, mobile data consumption stateside has skyrocketed.
Management projects, especially the deployment of 5G, will help create shareholder value, including dividend growth of more than 7% per year. The REIT currently generates an attractive 3.4% dividend yield.
CCI stock has declined 17% since the beginning of the year. Shares are trading at 42.6 times forward earnings and 11.4 times sales. Wall Street’s 12-month median price forecast is at $201.
Etsy (ETSY)
52-Week Range: $67.01 – $307.75
Online e-commerce platform Etsy (NASDAQ:ETSY) sells unique or one-of-a-kind items such as handmade and crafted goods as well as vintage items. Through recent international acquisitions, such as Elo7 in Brazil, Etsy has been growing its global outreach.
The online shopping company announced Q1 metrics on May 4. Revenue increased 5.2% YOY to $579 million. Net income came in at 60 cents per diluted share, down from $1 a year ago. Cash and equivalents ended the period at $762 million.
Etsy added 7 million brand-new buyers, bringing its total active buyers to 95.1 million. Total gross merchandise sold increased 3.5% YOY in Q1 2022.
Analysts point out Etsy’s lack of physical infrastructure makes it more resilient during a market downturn than its peers. In addition, the company is currently expanding into high-growth e-commerce markets like Southeast Asia and Latin America. As a result, management anticipates Q2 revenue to increase more than 11% YOY at the high end.
So far in 2022, ETSY stock has fallen 61%. Shares are trading at 31 times forward earnings and 5 times sales. Analysts’ 12-month median price forecast stands at $114.
Meta Platforms (META)
52-Week Range: $154.25 – $384.33
Meta Platforms (NASDAQ:META) is the largest social media company. Its family of apps includes Facebook, Instagram, Messenger and WhatsApp.
The social media giant primarily generates revenue through the advertising businesses on its platforms. Looking forward, CEO Mark Zuckerberg expects his company to lead the growth in the metaverse economy.
Meta Platforms issued Q1 metrics on April 27. Revenue surged 7% YOY to $27.9 billion. Earnings per diluted share came in at $2.72, down from $3.30 in the prior-year quarter. Cash and equivalents ended the period at $43.9 billion.
Investors are worried about slowing growth and rising expenses amidst a weak advertising environment. As a result, the company reported a 25% YOY decline in operating profit.
Management anticipates nearly flat revenue in the second quarter, attributing the slowdown to the privacy update by Apple (NASDAQ:AAPL). It reduces the efficiency of Meta’s targeted ads and fierce competition from TikTok.
META stock has lost almost 53% YTD, trading at 2-year lows. Shares look significantly undervalued at 14.2 times forward earnings and 4 times sales. Wall Street’s 12-month median price forecast is at $285.
Skyworks Solutions (SWKS)
52-week range: $88.76 – $197.62
Skyworks Solutions (NASDAQ:SWKS) offers semiconductors for wireless handsets that support wireless connectivity. The chipmaker reported Q2 metrics on May 3.
Revenue increased 14% YOY to a record $1.34 billion. Net income per diluted share came in at $2.63, up 11% from $2.37 in the prior-year quarter. Cash and equivalents ended the period at $656.4 million.
Skyworks benefited from growing chip demand from leading smartphone original equipment manufacturers (OEMs). Apple (NASDAQ:AAPL) is Skyworks’ largest customer, accounting for 54% of its Q2 revenue.
Wall Street was pleased that revenues from its non-smartphone business grew 36% YOY to a record $523 million, generating 39% of total revenue. Skyworks is expanding its footprint in high-growth markets, including the Internet of Things (IoT), industrial, automotive and wireless connectivity.
So far in 2022, SWKS stock has dropped 39%, trading around its two-year lows. It currently supports a dividend yield of 2.4%. Shares have a cheap valuation at just 7.3 times forward earnings and 2.9 times sales. Analysts’ 12-month median price forecast stands at $135.
Twilio (TWLO)
52-Week Range: $77.14 – $412.68
Business-to-consumer (B2C) communications platform Twilio (NYSE:TWLO) offers solutions that allow companies to move their contact centers into the cloud, i.e., away from traditional physical locations. Twilio users integrate text messaging, emails, or video communications into their operating solutions.
Twilio released Q1 figures on May 4. Revenue grew 48% YOY to $875 million. Adjusted net income per diluted share came in at 0 cents, down from 5 cents per diluted share in the prior-year quarter. Cash and equivalents ended the period at $1.62 billion.
The communications group enjoyed a 14% rise in active customer accounts, reaching 268,000 as of Mar. 31. Management is anticipating 37% YOY revenue growth in the current quarter.
So far in 2022, TWLO stock has tumbled around 66%, trading near its two-year lows set on June 16. Shares are changing hands at just under 5 times sales, near its lowest valuation as a public company. Analysts’ 12-month median price forecast stands at $200.
On the date of publication, Tezcan Gecgil, Ph.D., 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.
