Faced with rising interest rates and a cooling U.S. economy, the stock market has experienced a significant correction throughout 2022. While investors can view much of this decline as a return to normalcy, some stocks are now “a buy” in oversold territory.
Oversold stocks present an opportunity for investors to capitalize on short-term overcorrections in the market. From fundamental analysis to technical indicators, many investment metrics can be used to identify the most oversold stocks. However, the Relative Strength Index (RSI) is a popular starting point.
The RSI is a momentum oscillator calculated based on the intensity of recent price movements. The indicator displays on a scale of 0 to 100, with oversold conditions indicated by a reading of 30 or below. But it’s important to recognize that not every oversold stock is undervalued or a strong buy.
Sukanta Sekhar Das, Founder, and CEO of CoinMarketBag, says, “the RSI has been applied to many trading strategies for decades. It is a handy indicator, but as with any indicator, it should not be used independently. Ideally, it would always be used with other indicators or chart patterns.”
Additionally, Tony Nasr, CFA, Fintech Analyst at Investing in the Web, highlights the importance of looking at RSI trendlines. Just like a stock, the break of an RSI trendline can indicate a potential trend reversal. Besides, breaking an RSI trendline may be a leading technical indicator since it tends to precede breaking a trendline on the price chart.
This list represents the ten most oversold stocks among the S&P 500, as determined by the 14-day RSI. Consider industry headwinds, company guidance, analyst ratings, and target prices to identify stocks worth adding to your portfolio.
Top 10 Most Oversold Stocks To Buy
It’s a myth that oversold stocks are bad investments. Instead, if you’re into stock market trading, there are a few hidden gems. If you can pick wisely, you can reap profits in the long run. The money will be all yours. You can use it to consolidate credit card debt, build an emergency fund, pay medical bills, etc. Here are the ten most oversold stocks you can buy in 2022.
1. Cincinnati Financial (CINF)
While you may think Cincinnati Financial is a bank or credit union, they are indeed a property casualty insurer founded in Ohio in 1950. The company competes in a highly competitive marketplace across five key segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. Independent insurance agencies in 46 states market these products.
Recently Cincinnati Financial reported disappointing Q2 earnings, causing the stock to plunge more than 13% and into oversold territory. Adjusted operating income came in at just $0.65, compared to analyst estimates of $1.04 and last year’s Q2 performance of $1.79.
Due to an uptick in declared catastrophes, the company paid out more money in claims than it earned in premiums in the second quarter, for a combined ratio of over 103%. However, CEO Steven J. Johnston thinks the full-year ratio will fall in the low to mid-90s. Plus, Cincinnati Financial is a member of the dividend kings, having steadily increased its dividend for 62 consecutive years.
CINF’s RSI: 20.2
2. Newmont Mining Corp (NEM)
Newmont Mining is the largest U.S.-based gold company and the only gold producer listed in the S&P 500. The company also mines copper, silver, zinc, and lead. Newmont operates or holds assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana.
After sharing its Q2 earnings update, the company’s stock price plummeted nearly 15%. Although gold equivalent production and commodity prices were up slightly, Newmont was plagued with inflation-related operating cost increases. From labor costs to diesel fuel to the steel used in mining equipment, the company saw its profits fall by 40%.
To combat rising costs, the company is shifting production away from its Colorado mine and toward a cheaper West African mine. This change should allow for more efficient and economical mining. If material costs level out due to recession fears, Newmont may be able to recover its squeezed margins.
Financial Advisor and CEO of ClothingRIC, Chris Nidde, think NEM will be able to push through its troubles. “I believe this NEM will be one of the big comeback stories of 2022,” Nidde says.
NEM’s RSI: 25.0
3. Baxter International Inc (BAX)
Baxter International develops healthcare products in hospitals, nursing homes, doctors’ offices, rehabilitation centers, and more. The company offers various devices, software, communications, and integration technologies to support dialysis and intravenous therapies, surgical procedures, and critical care. Baxter International sells through both a direct sales force and independent distributors.
Baxter International is one of the most oversold stocks because, like its peers on this list, the stock tumbled 9% after announcing its Q2 financials. While top-line revenue increased 21% year-over-year, most of the growth came from the company’s 2021 $10.5 Billion acquisition of Hillrom. Baxter’s core business grew only 3% and saw slight declines in its acute therapies and biopharma solutions segments. Further, the company revised its full-year guidance, with adjusted earnings per share now expected to report 10% lower than previously thought.
CEO Joe Almeida blamed “unprecedented macroeconomic headwinds” for the company’s challenges. Baxter’s ability to rebound from its slowing growth and supply chain woes will dictate whether or not the stock is truly undervalued at current levels.
BAX’s RSI: 25.2
4. Stanley Black & Decker Inc (SWK)
Stanley Black & Decker is a tools business that offers professional, consumer, and industrial product lines. The professional and consumer segments include power tools, pneumatic tools, and storage products. The industrial line sells automatic doors, pipeline and hydraulic tools, and heavy equipment attachment tools. Through its Stanley Earth brand, Stanley Black & Decker has shown its commitment to solar energy and sustainability by launching products such as solar-powered water pumps.
Teetering just above oversold territory, Stanley Black & Decker is worth keeping an eye on after its most recent earnings report. Due to inflation, rising interest rates, and softening demand, the company’s free cash flow swung negative in Q2. Executives also lowered annual guidance for 2022 earnings per share by nearly 50%, driving the company’s share price down 20% over the past week.
However, there are reasons to own Stanley Black & Decker stock. For one, the company is a dividend king that currently pays a $3.20 annual dividend, corresponding to a 3.4% dividend yield. Further, the company is divesting non-core assets to free up cash and striving to raise prices and clean up its supply chain. If Stanley Black & Decker is successful and able to recover its margins, the business is trading at just 9 times next year’s earnings estimates.
SWK’s RSI: 30.8
5. Everest Re Group (RE)
Everest Re Group is a reinsurance and insurance business headquartered in Bermuda. Founded in 1973, Everest primarily offers property and casualty reinsurance and insurance through brokers, general agents, and direct relationships. Other ancillary insurance products that Everest sells include medical malpractice, directors’ and officers’ liability, errors and omissions liability, workers’ compensation, and more.
Although Everest is not technically oversold, investors may consider buying the stock after its recent weakness. Despite gross written premiums growing 8% year over year in Q2, net operating income declined 33% due to elevated claims for catastrophe events. These results pulled the stock down approximately 7%.
However, on the Q2 earnings call, CEO Juan Andrade highlighted many of Everest’s recent wins. Andrade said, “we expanded margins across our insurance and reinsurance businesses with disciplined growth, continued to scale our insurance platform, and in reinsurance capitalized on strategic market opportunities that improved the diversity and economics of our book while reducing volatility.”
RE’s RSI: 32.3
6. AT&T Inc (T)
AT&T provides worldwide telecommunications, media, and technology services under the AT&T, Cricket, AT&T PREPAID, and AT&T Fiber brands. The company sells wireless voice and data services, handsets, data cards, internet-enabled devices, and protective cases in stores, through agents, and third parties. AT&T also offers cloud solutions, security, and equipment to businesses and governments of all sizes. They also have AT&T Cybersecurity, which can help identify vulnerabilities in a network and help businesses develop a comprehensive strategy for security.
After beating Q2 earnings per share expectations by 5%, the company decreased its full-year free cash flow guidance due to investment in 5G infrastructure and working capital. Previously a dividend aristocrat, many of AT&T’s investors are still attracted to its $1.11 dividend (5.93% yield). This projected decline in free cash flow sparked fears of further dividend instability, which resulted in a 10% sell-off and a significant decline in the company’s RSI.
However, Morgan Stanley analyst Simon Flannery stands by his Overweight rating for the stock and maintains a price target of $22. With a projected free cash flow of $14 billion and only $8.5 billion of that income allocated to dividends, he feels that public market investors have overreacted to worthwhile long-term investments.
T’s RSI: 32.5
7. Loews Corp (L)
Not to be confused with the home improvement retailer, Loews is a commercial property and casualty insurance company headquartered in New York City. The business sells specialty insurance products and loss-sensitive insurance programs through independent agents, brokers, and managing underwriters. Loews is also involved in transporting and storing natural gas, operating 26 hotels, and producing a wide range of plastic containers and materials.
Like others on this list, Loews reported disappointing Q2 earnings of $180 million versus $316 million in Q2 of 2021. This decline can be attributed to lower net income from joint stock investments, especially compared to 2021.
Unlike other insurers, however, CEO James Tisch noted that “operationally our subsidiaries performed very well this quarter. Loews Hotels & Co achieved its highest net income quarter over a decade, and equity market volatility masked [our subsidiary’s] best underlying combined ratio of 90.8%.”
L’s RSI: 33.6
8. Incyte Corp (INCY)
Incyte is a biopharmaceutical company specializing in the discovery, development, and commercialization of treatments. The company currently offers a myelofibrosis drug and two kinase inhibitors that treat tumors and certain kinds of cancer. Incyte also has several products in phase two and three clinical trials.
Incyte has outperformed by more than 27% year-to-date compared to its industry peers. Plus, Incyte posted a Q2 sales and earnings beat on the back of continued growth from Jakafi, the company’s biggest moneymaker.
Nonetheless, the company recently fell below its 200-day moving average and is nearing oversold territory. RBC analyst Brian Abrahams attributes this decline to a “weak quarter for key growth driver Opzelura,” Incyte’s new skin treatment. Despite this near-term bearishness, Abrahams maintains his outperform rating and $88 price target, representing 21% upside potential.
INCY’s RSI: 33.8
9. Verizon Communications Inc (VZ)
Verizon Communications is a diversified telecommunications business that supports 115 million wireless retail connections, 7 million broadband connections, and 4 million Fios video connections. The company serves consumers with internet access, wireless equipment, and smartphones, as well as businesses with cloud connectivity, private networking, and unified communication tools.
After posting its Q2 earnings report, Verizon’s share price fell to a five-year low. Revenue was flat, and earnings missed slightly, but executives significantly reduced guidance, indicating that Verizon’s near-term growth may have stalled out. Verizon’s revenue is forecast to grow at a rate of 1.54% per year, which is not exceptional. That being said, some investors are beginning to note the appeal of Verizon’s fundamentals. With arguably the best network among wireless providers, a dividend yield of 5.6%, and a P/E ratio of 9.10, the stock has rallied nearly 4% off of recent lows.
VZ’s RSI: 34.3
10. Comcast Corp (CMCSA)
Comcast is a media and technology conglomerate that operates 5 key segments: Cable Communications, Media, Studios, Theme Parks, and Sky. Cable Communications includes the traditional broadband, video, voice, and wireless services that residential and business customers access through Xfinity. Media includes cable networks like NBCUniversal, Telemundo, and Peacock, and Studios covers the corresponding studio production and distribution arm. Theme Parks refers to the company’s four Universal theme parks. The Sky segment offers direct-to-consumer phone services.
Comcast posted better-than-expected Q2 earnings but has underperformed the S&P 500 by nearly 6.5% over the past three months. Wolfe Research analyst Peter Supino notes, “although Comcast’s broadband churn remains below 2019 levels, cable share of gross adds continues to deteriorate.” Similarly, the streaming service Peacock saw subscribers remain flat despite heavy investments into the platform.
Although all signs point to slowing growth, Comcast is nearing oversold levels. Any further pessimism could create an opportunity to bet on Comcast’s healthy cash flow, given its cheap P/E ratio of 12.2 and current dividend yield of 2.9%.
CMCSA’s RSI: 34.8