The S&P 500 hit a fresh record high on Thursday as a new coronavirus stimulus deal seemed close to becoming reality and a second COVID-19 vaccine got one step closer to FDA approval.
But as the market rises ever higher, there are a few unloved stocks on the Street that could be about to rebound.
The RSI measures momentum relative to price history, and for all of these stocks, the reading is below the 30 mark that indicates oversold conditions. And in fact, as the market has risen higher in the last month, all four stocks have slipped lower with Best Buy dropping 13% over the last month, McDonald’s slipping 0.6%, Procter & Gamble has fallen 1%, and Regeneron shares are down more than 7% in the last month.
But Joule Financial president Quint Tatro says not all of these beaten-up stocks deserve to be shunned.
“The first thing we look at when stocks are out of favor, especially in such a very strong market like this is: Why?,” Tatro said this week. “Is there a structural or some sort of fundamental issue, or has it just kind of fallen out of favor, maybe because of news headlines, etc.? And the not that we come to immediately is Regeneron.”
Tatro argues that the recent weakness in the stock is due to investors shifting to coronavirus vaccination stocks, leaving Regeneron and its promising experimental COVID-19 treatment in the dust. But the stock is still a strong fundamental play.
“A stock could be attractive from a valuation standpoint, from a PE or price-to-sales, but if they’ve got a horrid balance sheet, then we stay away,” Tatro said. “Well, Regeneron has an exceptional balance sheet – 0.2 debt-to-equity. That’s a great position to be in.”
Looking at Regeneron’s chart, the price has fallen to between the 50% and 61.8% Fibonacci retracements, and has been in a falling wedge pattern recently, both signals indicating the stock could be nearing a bottom.
Piper Sandler chief market technician Craig Johnson says there’s another oversold stock that’s watching now.
“Let’s take a look at the chart of McDonald’s,” Johnson said. “McDonald’s chart looks like a classic head-and-shoulders top in the making here. It looks like we’re just now starting to break the neckline on the chart. And I would say that your next big area of support comes in around $198. That’s where you have your 200-day moving average. So, not a stock I’m ready to step up and buy quite yet.”
McDonald’s shares are currently trading around 8% higher than the $198 level Johnson is watching for.
Johnson also has his eye on Procter & Gamble shares, but says the stock could languish in oversold territory for a while longer.
“This is a distributional looking char, meaning that it’s kind of rolling over,” Johnson said. “This particular stock has broken through kind of key support at $136. I think your next big area of support comes at the 200-day moving average, around $127, so, not ready to step up for that one.”
Procter & Gamble closed at $138.25 on Thursday, nearly 9% higher than $127.