It has been a difficult year for many stocks. And that includes several stocks that have outperformed the market in 2021. One strategy forward-thinking investors employ is to look for oversold stocks. One way to identify these stocks is to look at a stock’s Relative Strength Indicator (RSI). An RSI of 30 or less indicates a stock that is oversold. However, any number below 50 suggests that there could be bearish sentiment.
The question for investors, however, is which of these stocks are oversold for a reason and which are simply oversold? This article takes a look at five stocks that fell dramatically in 2022. Each fell for a reason, but gives investors reason to believe there could be a turnaround in 2023.
Generac stock has fallen over 72% in 2022. The company is known for its home generators. But the company provides a range of products, including power generation equipment and energy storage systems for its residential, light commercial and industrial customers.
Concerns about GNRC stock include the threat of competition and the idea that once customers buy their products, they won’t need to replace them. This has caused investors to be wary of the company, even though it has exceeded earnings estimates for the past four quarters.
Investors will be watching to see if the company’s revenue and earnings peaked in the second quarter of this year. Still, with stocks trading below pre-pandemic levels, GNRC looks like an oversold stock to buy in 2023. And the analyst community agrees. Of the 23 analysts tracked by MarketBeat, the stock has a consensus price target of $237.10, 148% higher than its current price.
Costco can’t be called the biggest loser of 2022. COST stock is “only” down 18% in 2022. But it’s down 24% from the 52-week high (and all times) that she reached earlier this year.
Like many retailers, Costco is under pressure as investors fear the consumer will run out of steam. Additionally, retail trade figures for November were weaker than expected. And analysts suggest the holiday season could be more vulnerable than expected.
The company has beaten on earnings this year, and revenue is up year over year. One of the keys to watch for investors will be subscriber retention. So far, this hasn’t been a problem for the warehouse club. And if it continues, it will likely allow COST stock to justify its premium valuation. Indeed, if consumers maintain their membership, they are likely to favor shopping at Costco (where they can also get gas) over other places.
Remember when TSLA stock was considered grossly overvalued? It’s been a long time, but that was only last year. But in 2022, TSLA’s stock is down 57% even though the company is profitable and increasing shipments and revenue every quarter.
Yes, there are macroeconomic headwinds in China and the United States. And the stock is also under pressure as founder and CEO Elon Musk has sold a huge number of shares, apparently to help fund his purchase of Twitter. And, oh, by the way, Musk himself was saying TSLA stock was overvalued.
Nonetheless, Tesla’s bull case comes down to fundamentals. The company has a profit margin nearly double the industry average, and projections call for solid revenue and profit growth over the next five years. This means that it is likely that TSLA stock will justify its premium valuation. If so, buying stocks now will be a good investment.
It’s been a roller coaster ride for shareholders of the medical device maker. Stocks plunged early in the pandemic as demand for elective medical procedures plummeted. In fairness, investors probably overcorrected to the upside in 2021. But another overcorrection is happening, with a decline of more than 25% in 2022.
There is a legitimate concern about product recalls. The company has reported 23 such recalls in the past two years. This compares to an average of five per year over the previous four years. And the company lowered its earnings forecast in its latest earnings report.
But once you look past the noise, value investors see a company that has increased its dividend in each of the past 45 years and is currently yielding over 3.5%. And with MDT, a stock trading at a forward price-to-earnings ratio of 14x, it seems like a great choice for income investors.
The energy sector will remain one of the best sectors for investors in 2023. However, in the short term, many energy stocks are under pressure. For example, NextEra Energy is down 14% for the year, but NEP stock recently crossed two key moving averages and is now considered oversold based on RSI.
The name implies that the company is a leader in the renewable energy sector, and it is. But the company’s portfolio also includes about 727 miles of gas pipelines. This allows the company to generate high free cash flow. And the company is telling investors that it plans to allocate a significant portion of that cash flow to dividend growth over the next few years.
This means that at 14 times earnings and with a price target of around $85, NEP stock looks like a strong choice for growth and value investors.