As we reach the middle of August 2023, the AI rally seems to be losing steam. With this bull run showing signs of a plateau, I think it’s time to start looking for bargains in other areas of the market. In my view, we’ve hit an inflection point where market concentration is finally shifting away from mega-cap tech names. This rotation creates an opportunity to scoop up shares of high-quality companies in various sectors that have been oversold during the recent tech-focused rally.
In this article, I’ll discuss seven very oversold stocks that I believe are poised for a rebound. These are strong companies with great fundamentals that have simply been caught up in the broader market sell-off. But with attention turning to value opportunities outside of tech, they now have the potential to bounce back. I see their current valuations as quite attractive for long-term investors.
The key is targeting companies with healthy balance sheets, solid growth stories, and durable competitive advantages. By focusing on oversold opportunities like these, investors can position themselves to generate strong returns as the market enters a new phase. Let’s dive in!
AT&T (T)
AT&T (NYSE:T) has seen its stock price plummet nearly 57% from its highs in 2016 and reach levels not seen since the early 1990s. While the company has faced significant challenges with the broader telecom sector slowdown and the recent lead cables controversy, I believe the sell-off has been overdone. AT&T remains a telecom giant, serving over 223 million wireless customers in the U.S. This allows the company to generate very strong cash flows, which support its very attractive 7.8% dividend yield. It’s not the most reliable yield, but AT&T trades at just 6-times forward earnings, which is far too cheap for this high quality business.
Simply put, T stock appears very oversold here. Analysts have an average price target of $25 on AT&T, representing 42% upside from current levels. I see strong potential for AT&T to bounce back as investors recognize how undervalued it is. Analysts expect steady top-and-bottom line growth of roughly 1%-1.5% annually, which should propel earnings higher over time. It isn’t a growth play by any stretch, but with a rock-solid balance sheet and durable competitive advantages, AT&T is poised to deliver strong total returns from these beaten-down levels.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) has been caught up in the tech stock selloffs over the last two years but has yet to recover. Currently, PYPL stock remains 80% off from their highs. However, I believe this leading digital payments provider has tremendous upside potential. PayPal continues to grow revenue at a 7% clip year-over-year, driven by peer-to-peer transactions growth and its fast-growing subsidiary apps.
Profitability also remains strong, supporting 16.7% operating margins. This has allowed PayPal to undertake massive share buyback programs, with the most recent one being worth $5 billion. The company’s fortress balance sheet also means there’s more growth on the horizon, with $10 billion in cash to support growth initiatives.
Analysts believe PayPal can pull off ~10% growth year-over-year through 2032. Earnings per share growth expectations are also optimistic, averaging roughly 20% annually. History shows that this is a company that can easily meet those expectations. Indeed, PayPal has only missed annual revenue and EPS expectations once since 2015. It should be noted that those misses were microscopic (revenue missed by 0.06% and earnings missed by only 1 cent).
Despite these projections, the stock trades at just 13-times forward earnings after its huge pullback. Yes, I do understand that account growth hasn’t been very impressive. But I still believe PayPal can reverse these trends, given enough time. And if not, it clearly has the ability to continue squeezing out decent growth and profits from its existing user base.
Analysts see 38% upside in PayPal’s stock from current levels. I believe the stock could bounce back 50% or more over the next 12-18 months.
Charter Communications (CHTR)
Charter Communications (NASDAQ:CHTR) also offers a compelling rebound opportunity as it trades at a 47% discount from its highs. As one of the largest cable and broadband providers in the U.S., Charter has an entrenched market position. The company continues growing broadband subscribers at a healthy clip, while also expanding mobile service.
The company’s profitability is robust, with 23% net margins, better than 82.5% of peers. Analysts expect sustained growth, averaging 2% year-over-year annually until 2028. In terms of earnings per share, analysts believe Charter can pull off roughly 15% annual growth over that time frame. The company also has a solid balance sheet. Yet, Charter trades at just 13-times forward earnings, representing a significant discount from its intrinsic value.
Analysts see just 12% upside in the stock from current levels, though this number has been dragged lower due to mixed sentiment, and one lowball price target of $325. On the other hand, Gurufocus’ model believes CHTR stock has a fair value closer to $800. Nonetheless, broadband demand continues to rise, and Charter appears primed for many years of growth ahead. The company also has pricing power and generates ample free cash flow of over $5.5 billion annually. Given Charter’s defensible market position and reasonable valuation, I view the stock as a top rebound candidate among current oversold stocks.
Zoom (ZM)
Zoom (NASDAQ:ZM) has seen its stock dive over 88% from pandemic highs. However, I believe the overreaction to normalization provides an opportunity. Despite the slowdown in growth, Zoom still grew revenue by 3% year-over-year last quarter. Analysts expect this growth to slowly creep up to 11.7% in 2027. Additionally, earnings per share growth is also expected to hit double digits in 2028. Thus, I feel paying 15.6-times forward earnings right now is more than compelling.
Zoom has also successfully diversified beyond video conferencing, with offerings like Zoom Phone, Rooms, Events, and many of its emerging event’s platforms. The pandemic blessed this company with a household name brand and over $5 billion in cash and no debt. Yet, the price is still the same. For investors with patience, Zoom stock appears significantly oversold here – presenting a chance to buy a high-quality business at a bargain valuation.
Tyson Foods (TSN)
Tyson Foods (NYSE:TSN) has seen its stock fall 45% from its peak, pressured by stubborn inflation and margin pressures. However, as one of the world’s largest protein producers, I view the sell-off as overdone. Tyson holds the #1 U.S. market share in chicken, beef, and pork, giving it wide economic moats. Despite challenges tied to inflation, analysts expect sales growth to accelerate to 4% by 2027. What’s more impressive is that earnings per share are expected to climb from $1.20 this year to $9.60 by the end of 2027.
Indeed, Tyson’s brand strength and multi-protein portfolio also give it pricing power to protect margins over time. It is not a cheap stock if you consider near-term metrics, but if you zoom out, Tyson appears substantially undervalued. If the company keeps up with earnings per share expectations, its price-earnings ratio drops to just 5.7-times in 2027.
But again, the road to recovery here will take some patience. The stock’s dividend yield of 3.5% comes in handy while you wait.
Snap Inc (SNAP)
Snap (NYSE:SNAP) has seen its stock absolutely decimated, with shares down more than 88% from 2021 highs. However, I believe this selloff has gone too far for this social media leader. Snap continues to rapidly grow its daily active users, with its total reaching 397 million in Q2. Revenue did decline 4% year-over-year, but is expected to deliver a 14.3% rebound in 2024 and 16.2% in 2025. That’s very strong for an advertising-dependent business amid this uncertain economic backdrop.
Importantly, Snap is making some progress in improving monetization and increasing its margins. The company’s average revenue per user (ARPU) ticked up to $2.69. That’s not much compared to its peers, and this is exactly why I think Snap has huge growth potential. Snap appears incredibly cheap relative to peers and analysts expect positive net income this year with sustained high earnings per share growth through this decade. The stock could triple or even quadruple in a bull-case scenario.
Match Group (MTCH)
Match Group (NASDAQ:MTCH) is another typical tech stock that fell 73% from 2021 highs, caught up in the broad selloff of technology and growth names. However, as the leading global dating app provider, Match retains tremendous long-term potential and is slowly bottoming out. The company’s top app Tinder continues growing, with 6% growth. This fueled 4% overall revenue growth for Match despite the challenging environment.
Trading at just 16-times forward earnings, Match appears significantly undervalued relative to its own history. With recent trends in mind, dating app usage remains strong, and Match is successfully monetizing its users. This is a long-term play that I believe is poised to deliver.
On the date of publication, Omor Ibne Ehsan 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.
