The efficient market hypothesis states that “share price reflects all available information and consistent alpha generation is impossible.” However, an important part of the market is irrational investor behavior and it creates opportunities to make big money.
A good example is that investors generally take low interest in good stocks that are trending lower due to near term headwinds. On the other hand, there is euphoria around stocks that have skyrocketed and the “fear of missing out” results in investors making wrong decisions.
This column focuses on the oversold stocks to buy that trade at a valuation gap. In my view, these stocks can witness a sharp reversal rally in the coming quarters. I would not be surprised if investors line-up to buy the same stores at a 30% to 50% premium. Without doubt, it makes more sense to buy now and hold with patience.
Let’s discuss the reasons that make these oversold stocks to buy worth considering.
Oversold Stocks to Buy: Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) stock had touched highs of $30 in September 2023. MNSO stock has, however, witnessed a sharp correction of 43% to $17. Besides profit booking, weak sentiments for Chinese stocks have contributed to the decline. The growth stock looks undervalued at a forward price-to-earnings (P/E) ratio of 15.6. Additionally, MNSO stock offers a dividend yield of 2.44%.
From a financial perspective, Miniso reported revenue growth of 36.7% on a year-on-year (YOY) basis to $519.6 million. For the same period, adjusted EBITDA increased by 52.8% to $139 million.
Robust growth and margin expansion has been driven by two factors. First, Miniso has aggressively opened new stores in China and overseas. As of Q1 2024, the company reported 6,115 stores, which was higher by 819 on a YOY basis. Further, Miniso has shifted towards a favorable product mix that has boosted margins. Additionally, the company has a dynamic product portfolio and benefits with an aggressive addition of new SKUs.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) stock has plunged by 80% in the last 12 months. The obvious reason is a massive correction in lithium prices. However, specific to the company, business developments have been positive and I expect a sharp rally from deeply oversold levels.
It’s worth noting that the company is already shipping spodumene concentrate from its joint-venture mining operation in Quebec. This is just the beginning and Piedmont expects to ship 525,000 tpy of spodumene concentrate once all assets commence production.
In an important development, Piedmont Lithium has received a mining lease for its Ghana project in Q3 2023. The lease term is for 15 years with commercial production expected to commence in 2026. Further, the company’s Tennessee project (100% owned) has received permits required to begin construction. In the United States, the Carolina asset is another potential cash flow machine. Amidst all these developments, PLL stock continues to trend lower and is clearly undervalued.
Newmont Corporation (NEM)
Among blue-chip stocks, Newmont Corporation (NYSE:NEM) has witnessed a sharp sell-off in the recent past. At a forward P/E ratio of 21.2, the stock looks attractive. NEM stock also offers an attractive dividend yield of 4.98%.
With inflation being relatively stubborn, there seems to be less clarity on the timing of expansionary policies. This has translated into some weakness in gold and gold miners. However, it’s clear that rates have peaked out and I expect rate cuts to translate into higher gold prices.
Newmont Mining, with quality assets and an investment grade balance sheet, is positioned to benefit. Further, with it’s gold rallies by 15% to 20% from current levels, the company will be positioned to report annual operating cash flows of more than $5 billion. Therefore, there is visibility for aggressive investments coupled with healthy dividend growth. I would not be surprised with a strong rally in NEM stock in the second half of the year.
On the date of publication, Faisal Humayun did not hold (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.
