Some of the best investment opportunities are temporarily oversold stocks. The following three stocks are high-quality stocks that have been beaten down in recent months by pessimistic investors even as major indices have soared to record highs. The rationale is that under-performance is temporarily creating the potential for sizable upside.
Remember, as Sir John Templeton often said, “The time of maximum pessimism is the best time to buy.” Or as Warren Buffett still says, a “climate of fear is your friend when investing; a euphoric world is your enemy.”
To make this list of oversold names, they must be high quality, healthy, with a high likelihood of a strong comeback. With that in mind, let’s take a look at three of the top most oversold stocks that have sizable upside potential.
The last time I weighed in on Pfizer (NYSE:PFE), I noted, “The worst appears to have been priced into the stock.” That was on Dec. 18, as the PFE stock traded at a low of $38.64. As of Jan. 21, it’s up to $40.53.
While the stock has rebounded well off its 52-week low of $34.15, I believe there’s still further, sizable upside in the stock as it looks to refill its bearish gap at $40.67.
In fact, according to Barron’s contributor Josh Nathan-Kazis, “Pfizer says it can grow sales by 6% a year over the next five years. Key tests for the company come in 2020, when investors expect data on a promising new indication for the company’s cancer drug Ibrance.”
In addition, Cantor Fitzgerald analyst Louise Chen argues that revenue gains, “operating leverage, pipeline advancements, return of capital to shareholders, and M&A are all underappreciated” and currently has a $53 price target.
I believe shares of PFE could rally to $45 a share in the near-term.
Over the last few weeks, shares of Wells Fargo (NYSE:WFC) gaped from a high of $54, finding support at $47.84. All after earnings fell short of expectations. EPS of 93 cents on sales of $19.86 billion were both worse than expectations for EPS of $1.12 on sales of $20.14 billion.
Wells Fargo stock is oversold at its lower Bollinger Band (2,20) with over-extensions on RSI, MACD, and Williams’ %R. Along with new CEO Charles Scharf, I believe WFC can refill its bearish gap at $52, near-term.
Granted, the “… bank is still under a Federal Reserve-mandated balance-sheet cap, and while previous management regimes tried to be sanguine about the bank’s prospects in Washington, Scharf was upfront about how long a path lies ahead. ‘I’m not sure that any of these public issues will be closed this year,’ he said,” wrote Barron’s contributor Ben Walsh.
However, to me, it appears a good amount of pessimism has been priced into the stock.
Since peaking at $222.89 in July 2019, shares of Beyond Meat (NASDAQ:BYND) plunged to a low of $73.17. All thanks to its sky-high valuation and sizable competition. Then, in recent days, Bernstein analyst Alexia Howard downgraded the stock to “outperform” on valuation concerns with a price target of $106 a share.
“We upgraded Beyond Meat to Outperform in November 2019 on the back of a selloff following the IPO lockup expiration. The risk/reward has become less attractive following the recent rally.”
While the valuation is rich, the stock is still quite attractive given its growth.
In fact, after slipping to a low of $73.17 in recent weeks, investors have been quick to send it back to $124 a share. All thanks to its expansion plans for China, news that McDonald’s (NYSE:MCD) will expand its trial of plant-based burgers in Canada, and on news that Starbucks (NASDAQ:SBUX) will add more plant-based options to its menu.
Better, U.S. retail sales of BYND meat alternatives rose to $75 million year over year, marking a 135% increase, according to Food Business News contributor Jeff Gelski, who added that 55% of Americans are trying to add more plant-based foods to their diet.
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