Should June bring forth even more market volatility, long-term value investors may finally have more opportunity to buy. As impressive as this market rally has been, it’s been somewhat tougher for new money to justify getting in at close to new highs. With some pundits calling for a market correction (a 10% drop), it seems wise to wait. But by doing so, you may be overlooking oversold blue-chip stocks that are deals right now.
Some large-cap stocks are now quite oversold, and even a market-wide correction may not nudge them to be markedly lower. In any case, investors should not time the market and instead take the stock market for what it is: a market of stocks.
Let’s look at three hard-hit, oversold blue-chip stocks that could be prime rebound candidates in the second half. Call them “blue-chip boomerangs,” if you will.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) and most quick-serve restaurant companies have been feeling a weight on their shoulders lately. Price hikes and negative press have curtailed demand for quick and easy fast-food meals. Recently, McDonald’s received public flack for increasing price increases by close to 40% for your average menu item over the last five years.
Even the most loyal consumers feel that the fast-food juggernaut has overextended itself in price. For now, they’re not “lovin’ it,” they’ll probably eat elsewhere until McDonald’s can bring back affordable food. The $5 meal deal, which lands in June, is fantastic, but it won’t be sticking around for long.
The big question is, what happens after the promotion goes bye-bye? Will customers stick around once the days of $5 meals are gone?
There’s a high chance of that. McDonald’s needs something more permanent on the value menu, even if such deals make franchisees sweat. After the 16% plunge-off highs, MCD stock goes for 21.4 times, trailing price-to-earnings (P/E) to go with a 2.68% dividend yield. At this juncture, it looks like the stock has a better value than the $5 meal.
Lululemon (LULU)
From fast food to fast fashion, we have Lululemon (NASDAQ:LULU), fresh off one of its worst sell-offs in years. Fashion trends have shifted as we inch closer to the decade’s midpoint. And though leggings and gym-appropriate attire could return to style by year’s end, I certainly would not get my hopes up.
In any case, the athleisure company is committed to changing with the fashion tides. Baggy, relaxed-fit clothing is in, and skintight leggings are on their way out, at least outside a gym setting. The company’s new line of relaxed-fit products may better fit what consumers want on the style front for 2024. Such products may just be able to give LULU stock the lift it needs after a disastrous first half of 2024.
Either way, Lululemon seems to have boxed itself in as an athletic apparel maker. It’s harder to break out of athletic apparel, especially given the brand’s heavy focus on the yoga crowd. Aside from the athleisure industry’s recent struggles, Lululemon faces a new wave of competitors that further complicates the path to recovery as it’s forced to play some defense for a change.
The stock looks somewhat enticing at 24.8 times trailing P/E. If the next quarter is better than feared, it may be time to jump into LULU stock to play a second-half comeback.
Nike (NKE)
Nike (NYSE:NKE) is another athletic apparel firm that’s felt the heat in recent quarters. I attribute much of Nike’s recent underperformance to the state of the macro environment. Shoes, a discretionary good, do not sell well when one’s grocery bill swells to become overwhelming.
Though a lack of innovative offerings before 2024 may also be to blame for Nike’s slump, I view NKE stock’s biggest woes as mostly outside its control. Consumers are starved for good deals after getting gouged by inflation for the past three years.
As you may know, Nike sneakers are not cheap. You’ll pay up to dawn the swoosh! Until Nike gets more aggressive with what it puts on the discount rack, I view Nike’s sneaker rivals as having the edge.
At writing, NKE stock is down more than 47% from its 2021 all-time high. At 27.4 times trailing P/E, the king of sneakers is incredibly cheap. While I’m unsure when the masses will start repurchasing Nike’s newest wears, I would be inclined to buy the stock at close to multi-year lows for the brand power alone as we step foot into a world where inflation is at a tame 2% or so.
On the date of publication, Joey Frenette held shares of McDonald’s. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
