Looking for oversold stocks to buy?
The Relative Strength Index (RSI) is among the most popular technical indicators investors and traders use. Created in 1978, the RSI helps investors assess the speed and momentum of price movements.
An overbought reading is at 70 and above, while an oversold reading is at 30 and below.
In many situations, oversold stocks can present themselves as an attractive investing opportunity, especially if a reversal is imminent.
Sure, nothing in life is guaranteed, and the same applies to RSI. Just because a stock is oversold according to RSI doesn’t suggest a trajectory in either direction. However, the magic happens when investors combine RSI with other technical indicators, fundamentals, and of course, experience.
In this article, I’ll explore three oversold stocks worth considering before they potentially reverse upwards. To compile my list, I screened the market using the following criteria:
- Revenue growth: Positive based on the latest annual report,
- Trading price: $5 or higher,
- Analyst rating: Strong buy,
- Previous 14-Day Relative Strength Index (RSI) moved below the 30-point mark within the last ten trading sessions,
The preceding screen resulted in five companies. So, I sorted the list by highest revenue growth (%) and arranged them from highest to lowest. Here are the results:
Ibotta (IBTA)
Lowest Recent RSI: 23.62 on August 14, 2024
Current 14-day RSI: 50.34
If you’re a discount hunter like I am, you might have already heard of Ibotta (NYSE:IBTA) thanks to its online promotions.
Today, Ibotta works with online stores, content developers, and advertisers to promote discounted products on their “Ibotta Promotions Network.”
Consumers access these deals and promotions through the web, browser extensions, and mobile apps. AI is used to optimize promotions to ensure they deliver the right product at the right time to consumers.
Ibotta had a strong start following its IPO in April 2024. However, since its stock peaked at $117, IBTA stock has been on a downward trend. Indeed, the honeymoon period is over amid a softer retail market. That said, Wall Street analysts still recognize the company’s long-term potential and rate it as a strong buy. Recently, financial services firm Needham has also reaffirmed its buy rating on the stock, citing its high potential.
If we have a closer look at Ibotta’s numbers, we can see that its top line grew 52% in FY 2023. Further, its collaboration with Walmart resulted in a 158% increase YoY in redeemers on the IPN.
Ibotta has also announced strategic plans to support further development, including a partnership with Schnuck Markets Inc. and a multi-year deal with Instacart.
“Our strong second quarter results demonstrate that Ibotta’s pay-for-performance model is resonating with our clients and consumers,” said Bryan Leach, founder and CEO. “In the current macroeconomic environment, now more than ever, CPG brands are turning to the IPN to win back market share, and that is leading to strong third-party redeemer and redemption growth.”
So, if you’re considering bottom-picking oversold stocks, IBTA stock might be worth a look before the market fully recognizes its potential.
Mitek Systems (MITK)
Lowest Recent RSI: 22.02 on August 14, 2024
Current 14-day RSI: 38.87
In a digital landscape where fraud and scams are increasingly prevalent, Mitek Systems (NASDAQ:MITK) offers a range of digital identity verification solutions powered by artificial intelligence to help protect its customers. The company’s offerings are divided into two main components:
- Software Development Kit (SDK): Responsible for mobile image capture.
- Cloud Software Platform: Utilizes AI and machine learning to authenticate financial documents, IDs, and identity-related items.
Recently, Mitek Systems received the 2024 Artificial Intelligence Breakthrough Award for authentication innovation, underscoring the company’s significant advancements in biometric systems.
After its latest earnings release and lowered guidance, the company’s stock experienced a significant drop, falling into the oversold territory. But that hasn’t swayed Wall Street analysts’ thoughts, as they’ve maintained a strong buy rating for MITK stock despite a potential slowdown.
Mitek has also consistently grown its revenue over the years, with FY 2023 record revenue of $172.6 million, a 19% year-over-year increase, despite a challenging fourth quarter.
The change in guidance has understandably unsettled some investors. Now, the critical question is whether the stock has hit bottom or could decline further.
Also, we shouldn’t forget that with a $430 million market cap, MITK is considered a small-cap stock. Small caps tend to be riskier than more mature companies as their products (in general) aren’t being used by the masses.
But if you’re willing to take on some risk, now might be an opportune time to start accumulating MITK stock while others sit on the sidelines, hoping for something to happen.
Alta Equipment Group (ALTG)
Lowest Recent RSI: 20.63 on August 14, 2024
Current RSI: 41.75
Alta Equipment Group (NYSE:ALTG) is well-known in the Midwest for its industrial forklifts and construction solutions. The company operates through a dealership network that provides heavy machinery, services, parts, and rentals. Alta’s business is divided into three main segments:
- Material Handling: Focuses on material handling equipment and lift trucks.
- Master Distribution: Specializes in large-scale equipment distribution.
- Construction Equipment: Handles the sale, rental, and service of construction equipment.
Alta Equipment has been in a prolonged downward trend since reaching its all-time high in 2023 and has once again entered the oversold territory in terms of its 14-day Relative Strength Index (RSI). The stock has declined further following the company’s recent earnings report, which revealed a 38-cent per share loss in Q2 2024, while revenue grew modestly by 4.2% year-over-year.
Looking at the bigger picture, annual results indicate that the company has infact been steadily growing. In FY 2023, revenue increased by 19.40%, although earnings slightly declined by 10%.
Despite the recent dip in performance, analysts have not lowered their consensus recommendation, maintaining a strong buy rating, which underscores ALTG’s underlying value.
ALTG is also considered a microcap stock, and certainly riskier than more mature companies. However, if you’re seeking stocks with strong analysts backing trading at lower levels, ALTG stock might be worth your consideration.
Final Thoughts on Buying Oversold Stocks
Aside from death and taxes, nothing in life is without risk, and investments fall squarely within that rule. Buying oversold stocks can be an effective long-term strategy, but know that any asset, for any reason, can slide further down before recovery—if it ever recovers. That’s why it’s so important to consider the company’s fundamentals, monitor your positions closely, and watch for new developments and other opportunities before making the plunge.
Disclaimers:
On the date of publication, Rick Orford did not have any positions in the companies published in this article.
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