Three Oversold Stocks To Consider Buying
Cagdas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Several important reports were unveiled last week. The stocks are in a good shape with an optimistic jobs market report, which led to advances in all industry groups of the S&P 500, along with the Dow Jones Industrial Average. Despite the record financial and capital account deficit by China, I think U.S. stocks are getting on track now.
Amidst this optimistic atmosphere, a number of stocks made it to new lows recently. A stock is generally considered oversold when the RTI (relative strength index) hits somewhere around 30. However, one should not confuse them with dirt-cheap ones. I rather call them as out-of-favor stocks under short-term selling pressure. Investors tend to panic when their stocks show a negative sign in a short amount of time, just like we saw with two stocks recently, both of which are included in my article. These stocks might be great candidates for contrarian investors. Based on the RSI tool, I found three stocks that are being mercilessly dumped by investors. Let’s find out why they are in oversold territory, and whether or not they can still be profitable after experiencing such losses recently.
Like I said in the previous paragraph, investors panic so easily when they see a negative sign, which drags the stock down to unexplainable levels. Just like we saw with Apple (NASDAQ: AAPL), giant stocks can lose nearly half of their value in just a couple months. Apple is hardly standing a little above $450 these days.
With the pessimistic cloud fading away, Apple can leapfrog again in no time. Despite massive efforts and dozens of smartphones made by Samsung, Apple still manages to be the largest mobile phone seller in the United States with a single mobile phone in its arsenal. Yes, Apple does face growing competition in all of the markets it's active in, but new products like the iPad Mini and a bigger iPhone enlarges its customer portfolio. Besides, a company with a passion for innovation can never fail because it will always find a way to adjust to current dynamics of the market. Major mobile phone producers no longer compete with each other--their goal is to catch up with the iPhone. Even most of their applications come copied from the App Store.
Since Apple has been the “leader of innovation” in the smartphone, tablet, and ultrabook arenas, I believe these declines are nothing but temporary movements. Tom DeMark, the Market Studies CEO, said Friday on CNBC that Apple’s current decline is a clear “indicator of a turnaround.” Financial indicators of the stock are in a great shape, as revenue and assets are bouncing quarter by quarter. So in every condition, Apple is a buy both fundamentally and technically.
I know most of you will boil over to see Time Warner (NYSE: TWC) on this list as the legendary CEO Glenn Britt is stepping down, which led to a 10% decline in just two days. Okay, the CEO is going--so what? No one is irreplaceable. Time Warner lost one tenth of its value in two days because most of the shareholders panicked. However, the stock is going for a 16% dividend hike. Now where are the chaotic problems at Time Warner related to the CEO stepping down ? No management can offer such a dividend boost if they believed they were on the eve of a catastrophic era. Never forget that a dividend increase is always a healthy sign.
Besides, the successor candidate Rob Marcus is quite capable of handling such a responsibility, in my opinion. The company has little exposure to the European debt crisis, and it has been breasting the tape in recent years via stock buybacks. Analysts are optimistic about Time Warner as well--no calls have been downgraded by the analysts yet. The mean target price is $111.40, indicating a 23.4% increase in the mid-term. Assets and cash flow seem alright. Return on equity is 28.9%, way above the industry average of 18.4%.
Cable operators are struggling to keep up with increased competition, so Time Warner can save its future if it sticks to innovation. Time Warner has long been a winner in its industry, and I believe Time Warner’s position in the market is good enough to generate solid cash flows in the near future. However, an innovation campaign will be needed for a long-term performance.
Finally, let's look at a company with much less speculation: Corning Inc. (NYSE: GLW). Corning is famous for its durable, resistant product “Gorilla Glass,” widely used for displays and touchscreens. RBC Capital and Barclays have downgraded their calls on Corning recently, which might be because of overstocked LCD inventory and margin pressures in some glass products.
The stock double-bottomed recently, and there’s still no solid progress--Corning is literally stuck between the $12-$12.50 interval. However, investing in this name has not been exciting for the past couple years, excluding some sharp movements. This is the type of stock for a patient investor. Dividends have been rising steadily since November 2011, and revenue and assets have been skyrocketing for the last three years. Price-to book value is 0.8, nearly half the industry average of 1.5.
Corning’s performance is mostly related to the sales numbers of the smartphones using Gorilla Glass. As long as the smartphone wars are not over, Corning is not over. Count on this stock and you’ll be fine.
BargainReporter owns shares of Apple. The Motley Fool recommends Apple and Corning. The Motley Fool owns shares of Apple and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!