Buying oversold stocks is not a question of one man’s trash being another’s treasure. In many cases, it’s simply the ability to look at specific fundamental or technical indicators as a way to identify stocks that are buying opportunities.
One of those metrics is the relative strength indicator (RSI). This is a momentum indicator that measures the speed and magnitude of a security’s recent price changes to predict overvalued (over 70) or undervalued (under 30) conditions in a stock’s price.
Undervalued stocks are also known as oversold. The stocks listed below recently had an RSI in the 40s or below. But future catalysts suggest that these stocks may be due for a bullish reversal or are already starting one.
Tesla Continues to Be a Stock That Requires High Conviction
Tesla Inc. (NASDAQ: TSLA) stock is one of the most actively traded stocks. But it also has its share of retail investors who are holding onto the stock with “diamond hands.” Their conviction stems from the idea that Tesla is more than just a car company. The company’s recent preview of its autonomous robo-taxi, as well as its Optimus robots, are just two examples of why investors believe TSLA stock deserves a premium value in line with tech stocks.
However, analysts don’t share that enthusiasm. On three separate occasions in the last 52 weeks, Tesla stock has flirted with a 52-week high of around $270. On each occasion, the stock has been rebuffed. TSLA stock has been down over 11% in the last three months and will now be down over 10% in 2024.
One reason for that is because the tangible revenue driver for Tesla is its electric cars. That's a sector that is likely to have a bright future but is struggling right now. However, if you believe in the company’s long-term outlook than this may be an opportunity. That said, the bullish case for Tesla as more than a car company may take years to play out.
UnitedHealth Group Is Going Along With the Trend
UnitedHealth Group Inc. (NYSE: UNH) is one of the leading providers of health insurance mandated by the Affordable Care Act (ACA) health marketplaces. It's also one of the key names in the Medicare Advantage space.
That's been a headwind for the healthcare giant in 2024. Despite year-over-year growth in revenue and earnings, UNH stock has been up just 7.5% and has been down about 2.5% in the last month, including the time since the company’s earnings report on October 15.
That report was good, but some analysts wanted great and UNH stock is selling off as a result. Nevertheless, Medicare spending growth will average 7.2% between 2021 and 2030, the fastest rate among the major payers. That’s why analysts remain mostly bullish on the stock which also pays a dividend that has been increasing for 15 consecutive years.
General Mills Is Likely to Benefit From Lower Interest Rates
The Federal Reserve’s campaign to lower interest rates could be bullish for General Mills Inc. (NYSE: GIS). The consumer staples giant is feeling the impact of inflation on two fronts. First, its revenue and earnings are lower year-over-year as consumers are increasingly turning to store brands to manage inflation. At the same time, General Mills is also dealing with elevated production costs. Any relief for consumers is likely to be bullish for consumer staples stocks like GIS.
However, with GIS stock trading with an RSI of around 31, the sell-off looks overdone. Analysts maintain a consensus Hold rating on the stock, but several analysts have been raising their price targets in the last 30 days. Many of these targets are substantially higher than the consensus price target of $73. And even if that growth is delayed, you can collect a dividend that has a yield of 3.44%.
Here's Why Investors May Want to Buy Any Meaningful Dip in COST Stock
With an RSI of around 48, you could consider that Costco Wholesale Corp. (NASDAQ: COST) is priced just right. However, the stock is down nearly 1% after hitting a 52-week high in September. The concern, such as it is, comes from Costco’s earnings report. The company beat on earnings, but it missed slightly on the top line, and the year-over-year gain is slowing.
That suggests that Costco shoppers, who have been remarkably resilient, are also feeling pressure from inflation. But with Costco, it’s important to look at the floor for revenue and earnings and not the floor. The company has a loyal subscriber base. And since the company raised its subscriber fee in September, it’s showing a retention rate of over 90%. Investors should keep that in mind when they consider buying any dip in COST stock.
Intuitive Surgical Proves Why RSI Can Quickly Change
Intuitive Surgical Inc. (NASDAQ: ISRG) was trading with an RSI in the 40s before its October 18, 2024, earnings report. The bullish report in which the company beat on the top and bottom lines sent ISRG stock soaring over 10%.
But here’s why the stock may still have room to move. The company said year-over-year procedures using its da Vinci robotic surgical system jumped 18%. The company also saw strong demand growth for lung biopsy procedures with its Ion Robotic Bronchoscopy.
Analysts have been quick to raise their price targets for ISRG stock, which suggests there may still be a 10% upside, and that may be conservative guidance if investors become more comfortable with the stock’s lofty valuation.