One tool that bargain hunters can utilize to identify beaten up stocks to buy after significant declines is the relative strength index (RSI). The RSI signals when a stock’s downward momentum may be exhausted, indicating that a correction could provide upside potential.
Typically, an RSI reading below 30 is viewed as an ‘oversold’ level, suggesting the asset may be due to a rebound. However, the RSI alone is insufficient to conclude a buying opportunity exists in beaten up stocks to buy. A thorough review of the company’s financial position is prudent to evaluate whether value currently exists.
The following three stocks have seen their share prices decline substantially recently. Although their RSIs indicate oversold conditions, their underlying business fundamentals still appear sound. This provides a potential for short-term gains for investors looking for certain beaten up stocks to buy.
Albertsons (ACI)
Albertsons (NYSE:ACI) has been heavily featured in the news lately, largely due to Kroger’s proposed merger announced in October 2022. However, the deal has faced significant obstacles. Recently, the FTC filed a lawsuit that has placed the merger’s fate in the hands of the judiciary. This has unsettled investors, sending the ACI lower to its 14-day RSI of 11.6.
While a successful consummation of the Kroger deal could deliver substantial upside, Albertsons maintains robust financials even without the merger. Its latest Q3 earnings demonstrated this resiliency, with diluted EPS jumping over 300%. Due to its undervaluation and strong fundamentals, ACI could be considered one of the beaten up stocks to buy.
Albertsons trades at a relatively low valuation, with a price-to-earnings (P/E) ratio of just 8.7x – less than half the broader U.S. grocery sector at 17.2x. This leaves the stock undervalued, representing one of the more compelling beaten up stocks to buy for patient investors.
Medifast (MED)
Medifast (NYSE:MED) has been facing some headwinds lately. The weight loss and supplement company suffered from consumers’ ability to hire weight loss coaches and the arrival of Ozempic and other drugs. The most recent earnings missed expectations, weighing heavily on the price of this beaten up stock to buy. Management remains hopeful of a turnaround following a deal with LifeMD (NASDAQ:LFMD) to expand sales channels.
The company’s shares dropped significantly, with its RSI reaching an oversold level of just 5.9. What’s interesting for potential investors is that Medifast trades at a P/E ratio of only 4.2x despite the earnings miss. The forward dividend yield stands at 17.4%, and the company increased its cash holdings. This indicates that the dividend is well covered and provides attractive value for investors in this beaten-up stock.
Apple (AAPL)
Even major technology firms are not immune to market volatility, as Apple (NASDAQ:AAPL) shareholders are now well aware. The iPhone maker experienced a difficult beginning in 2024 as sales in China and across the EU fell short of expectations. Apple’s stock price has dropped 12% this year, placing the company – a long-term favorite of Warren Buffett – in its most oversold position in six years at an RSI of just 22.1.
While a business as large and well-established as Apple may not immediately spring to mind when considering beaten up stocks to buy, technical analysts note the current weakness presents investors with a potential buying opportunity to secure a high-quality business at a temporarily discounted valuation. Only time will tell if 2024 brings an uptick in fortunes for the technology titan. However, long-term backers will hope current headwinds prove a mere blip rather than the start of a longer-term downtrend.
Apple’s P/E ratio trades at just 26.3x, below the S&P 500‘s 27.7x. Investors may see the beaten up stock to buy as a good quality choice that will shine through in the longer run.
On the date of publication, Stavros Tousios 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.
