Major indices are bouncing back, after selling off earlier this month. Bottom-fishers take note: there are still plenty of oversold stock opportunities out there for investors. There is not a concrete definition for the term “oversold stocks.”
For instance, stocks can be “oversold” on a technical basis. A good example is with stocks defined as “oversold” according to the Relative Strength Index, or RSI. Per Finviz, over 1500 U.S.-listed stocks currently meet this definition (an RSI of 40 or less).
But “oversold” isn’t limited to just technicals. Stocks can be “oversold” in another way: fundamentally. In other words, pushed down to a price below their underlying value.
Taking these two definitions into account n going contrarian on stocks the market has bailed on, select names that fit either or both definitions.
That’s the story here with these seven oversold stock opportunities. Each one is technically oversold and/or fundamentally oversold.
Academy Sports and Outdoors (ASO)
Academy Sports and Outdoors (NASDAQ:ASO) operates sporting goods and outdoor recreation product stores. Going public in 2020, shares performed strongly up until early 2023, thanks to the post-pandemic boom in demand for the products sold in its stores.
Lately, however, ASO stock has pulled back. After zooming from its IPO price of $13 per share, to as much as $69.02 per share earlier this year, the stock has been knocked back to the high-$40s per share.
Yet despite an earnings miss back in June, and rising concerns about softening demand, Academy Sports and Outdoors may just well be one stock due for a bounce.
Oversold on a technical basis, ASO is bona fide deep value, based upon traditional valuation metrics. Shares today trade for only 7.2 times forward earnings. Merely meeting dialed-back expectations may be enough to drive a re-rating for the stock.
Boyd Gaming (BYD)
Boyd Gaming’s (NYSE:BYD) is no longer technically oversold. However, in terms of valuation, shares in the casino and gaming company still fit well within the category of oversold stock opportunities.
BYD stock today is trading for just 10.3 times earnings. Yes, this represents a premium to other regional casino stocks, like Penn Entertainment (NASDAQ:PENN) and Bally’s (NYSE:BALY), each of which currently sports a single-digit earnings multiple.
However, one-time gains related to lease and sale/leaseback transactions are skewing 2023 results for PENN and BALY.
Earnings for both companies will drop considerably next year. Boyd trades for only 9.7 times estimated 2024 earnings, while Penn (24.3) and Bally’s (31.2) trade at higher multiples of their forecasted 2024 earnings.
Value-conscious investors bullish on gaming should consider oversold BYD shares.
Dollar General (DG)
Stocks may have bounced back, but that’s not the case with Dollar General (NYSE:DG). After plunging after the discount retailer’s last earnings report in June, shares are again trending lower.
At first, you may question why I think DG stock is one of the best market correction stock opportunities. The post-earnings share price collapse happened for a reason.
In the earnings release, the company missed on earnings, and reported horrendous outlook, citing macro challenges like inflation and slowing economic growth, as well as other factors like rising retail theft.
Still, Dollar General stock could now have solid rebound potential. Shares recently re-entered technical oversold territory.
You can buy DG today for only 15.6 times earnings, below the 18-20 earnings multiple the stock has traded for during much of the past decade. After riding out today’s headwinds, DG may be due for a re-rating.
FirstCash Holdings (FCFS)
FirstCash Holdings (NASDAQ:FCFS) owns and operates pawn shops. The company has locations in the U.S., Mexico, as well as throughout Latin America. So far in August, FCFS has sold off, falling from around $100 per share to the high-$80s per share.
However, this sell-off may benefit you, as it has made FCFS stock one of the top oversold stock opportunities.
This pullback has pushed shares into oversold territory, according to the RSI technical indicator. The stock today also trades for 16.1 times earnings. This may be too low of a multiple, given earnings forecasts for the coming years.
Last month, FirstCash reported solid quarterly results. This suggests future results could live up to the above-referenced forecasts. The company has also announced a big share repurchase program. These up to $200 million in stock buybacks may also provide a lift for oversold FCFS.
FMC (FMC)
Shares in agricultural sciences company FMC (NYSE:FMC) have taken a beating in recent months. Back in July, FMC’s latest fiscal results elicited a negative reaction among investors.
Missing on earnings, and lowering full-year outlook, it makes sense that bearishness about the stock has remained high.
Still, there may be a case to go bottom-fishing here with FMC stock. Sure, based on technicals, shares are making their way out of oversold territory.
Based on future earnings forecasts, however, FMC looks like a steal at current prices. Yes, chances are challenges continue throughout 2023.
However, the company could end up reporting a strong earnings rebound in 2024 and 2025. If current headwinds prove temporary, a big recovery may be in store for the stock. Currently trading in the high-$80s per share, within the past year, FMC has traded for as much as $134.38 per share.
L3Harris (LHX)
L3Harris (NYSE:LHX) has become technically and fundamentally oversold. Shares in the aerospace and defense firm currently have a 14-day RSI of below 30. LHX also sports a lower forward earnings multiple (14.5) than peers like Lockheed Martin (NYSE:LMT).
What makes LHX stock one of the stocks with buying potential is that there’s big upside potential related to L3Harris’ recently-completed acquisition of Aerojet Rocketdyne.
These include upside related to increased profitability, via cost synergies. There may be potential growth synergies as well.
Also, LHX’s track record of steady earnings and dividend increases. These point to the stock getting back on an upward trajectory over a long time frame.
As I pointed out back in June, LHX has increased its dividend by an average of around 15% over the past five years. The company is also only four years away from achieving “dividend aristocrat” status.
Macy’s (M)
Given the current economic climate, it may seem like it’s the wrong time to buy into an old-school department store chain like Macy’s (NYSE:M). Yet while the famed retailer has walked back guidance considerably, suggesting trouble ahead in the upcoming quarters, you may not necessarily stay away from shares.
Near-term uncertainty appears to be more than priced into M stock. At least, based on M stock’s current RSI, which is below 20. Macy’s also only trades for 4.4 times forward earnings. That’s not all. Something else makes M one of the top undervalued stock picks.
As a Seeking Alpha commentator recently argued, Macy’s is also extremely cheap relative to its real estate assets. Over time, the company could realize this underlying value. By returning much of this cash to investors via buybacks and dividends, this could lead to a big recovery for M stock.
On the date of publication, Thomas Niel 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.
