A fundamental concept of investing is to buy stocks at a value. One strategy used by investors is to focus on stocks that are oversold. Fundamental analysis can give investors an idea of certain stocks to look at. However, momentum is also important. For that reason, investors look for technical indicators to help them find oversold stocks that might be ready for a comeback.
One of the most popular tools is the Relative Strength Index (RSI). The RSI is a momentum indicator that measures the velocity and magnitude of price movements. The index also compares them with the magnitude of average gains and average losses.
The formula for calculating RSI is as follows:
RSI = 100 - ( 100 / 1 + RS)
Where RS (Relative Strength) is the average gain divided by the average loss.
Investors can use virtually any timeframe they wish. One of the most common is a 14-day RSI. Decreasing the number of days makes the RSI more sensitive to price changes. Conversely increasing the number of days makes the indicator less sensitive to price changes.
Investors may have different overbought or oversold indicators, but standard benchmarks are a stock may be overbought if its RSI exceeds 70 and may be oversold if its RSI exceeds 30.
The stocks in this presentation are chosen for a variety of fundamental and technical indicators. And all the stocks have been affected in one form or another by the Covid-19 pandemic.
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- Berkshire Hathaway
- Southwest Airlines
- Cincinnati Financial
- Xerox
- Norwegian Cruise Lines
- Anheuser Busch InBev
- General Electric
- Kimco Realty
- Colgate-Palmolive
- Cedar Fair
#1 - Berkshire Hathaway (NYSE:BRK.A)
Berkshire Hathaway RSI Score = 37.17
It’s ironic that Warren Buffett’s hedge fund, Berkshire Hathaway (NYSE:BRK/A) (NYSE:BRK/B) that is known for buying value stocks is undervalued. But the stock is down over 20% from its highs from earlier this year. Right now, some investors may be spooked because Buffett appeared to give investors a mixed message.
On the one hand, the Oracle of Omaha was bullish on America. On the other hand, Berkshire is not committing to buying any stocks. And there are some analysts who feel that perhaps the fund was too impulsive in jettisoning all their shares in airline stocks.
However, the market is remaining very bullish, and perhaps Buffett’s reluctance to jump in is an example of following his own advice of “being fearful when others are greedy.” Either way, Berkshire’s portfolio includes over 40 companies. And with signature names like Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC) the Berkshire portfolio should continue to show strength.
About Berkshire Hathaway
Berkshire Hathaway Inc, through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide. It provides property, casualty, life, accident, and health insurance and reinsurance; and operates railroad systems in North America. The company also generates, transmits, stores, and distributes electricity from natural gas, coal, wind, solar, hydro, nuclear, and geothermal sources; operates natural gas distribution and storage facilities, interstate pipelines, liquefied natural gas facilities, and compressor and meter stations; and holds interest in coal mining assets.
Read More - Current Price
- $703,299.99
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#2 - Southwest Airlines (NYSE:LUV)
Southwest Airlines (LUV) RSI Score = 31.56
Speaking of airline stocks, there are none of them that are a screaming buy at this time. But it appears that Southwest Airlines (NYSE:LUV) has been singled out. LUV stock has an RSI score of just over 30 which is putting it right about in oversold territory. Part of the reason for investor pessimism is that Warren Buffett’s hedge fund, Berkshire Hathaway (NYSE:BRK/A) (NYSE:BRK/B), sold their entire stake in Southwest and other airlines.
According to Buffett, airlines are facing a different world and stated that Berkshire was in a worse position after having taken on airline stocks four years ago. Predictably, Southwest’s CEO Gary Kelly disagrees. Kelly did not disagree with Buffett’s assessment of the near-term outlook for all airlines. However, he has a more optimistic long-term outlook.
In making his case, Kelly cites the fact that Southwest is better positioned to capture the customer who is price sensitive. The airline is known for its low-cost flights so it shouldn’t have to drastically discount its airfare in trying to capture customers.
About Southwest Airlines
Southwest Airlines Co operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets. As of December 31, 2023, the company operated a total fleet of 817 Boeing 737 aircraft; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as ten near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
Read More - Current Price
- $31.77
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 11 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $30.78 (3.1% Downside)
#3 - Cincinnati Financial (NASDAQ:CINF)
Cincinnati Financial (CINF) RSI Score = 28.87
Investing in oversold stocks is not without risk. And in the case of Cincinnati Financial (NASDAQ:CINF), you should proceed with caution. The company is a diversified insurer that focuses on commercial property and casualty coverage and policies. The company has been named as a defendant in a number of business interruption claims stemming from the shutdown caused by the Covid-19 pandemic.
If the courts rule against Cincinnati Financial, the stock may become worthless. However, CEO Steven Johnston believes the company will be able to avoid major business interruption payments even though the company’s major policies do not make a specific exclusion for pandemics. Investors are more skeptical, and an unfavorable ruling could give the insurance company significant exposure.
In any case, the court case may take some time to work through the courts. And Cincinnati Financial had a strong balance sheet and credit ratings of A and A+ prior to the pandemic.
About Cincinnati Financial
Cincinnati Financial Corporation, together with its subsidiaries, provides property casualty insurance products in the United States. It operates through five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. The Commercial Lines Insurance segment offers coverage for commercial casualty, commercial property, commercial auto, and workers' compensation.
Read More - Current Price
- $151.62
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $138.57 (8.6% Downside)
#4 - Xerox (NYSE:XRX)
Xerox (XRX) RSI Score = 44.01
Investors may think Xerox (NYSE:XRX) is one of the last bastions of a dying industry. However, the printing and digital document services company looks to have a couple of catalysts. To begin with while the company’s legacy printing business is in decline in the United States, it looks to have demand coming from emerging markets. And, the company is evolving to help take advantage of the emerging digital packaging industry.
Looking at fundamentals from its most recent earnings report, Xerox reported earnings that came in below analysts’ estimates, but revenue was a slight beat. Morningstar has given Xerox a $30 target price and the consensus price target for XRX stock is over $19 per share. That would be a gain of over 10% from current level. And investors can enjoy a nice dividend that currently totals $1.00 per year with a current dividend ratio of over 5%.
About Xerox
Xerox Holdings Corporation, together with its subsidiaries, operates as a workplace technology company that integrates hardware, services, and software for enterprises in the Americas, Europe, the Middle East, Africa, India, and internationally. The company operates through two segments, Print and Other; and FITTLE.
Read More - Current Price
- $8.39
- Consensus Rating
- Strong Sell
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $9.50 (13.2% Upside)
#5 - Norwegian Cruise Lines (NYSE:NCLH)
Norwegian Cruise Lines (NCLH) RSI Score = 45.17
There are conflicting reports regarding the liquidity of Norwegian Cruise Lines (NASDAQ:NCLH). Company CEO Frank Del Rio told Barron’s that the company has enough cash to last more than 18 months even if the cruise line has zero dollars in revenue. Said, Del Rio, “This is a very strong company that could have withstood just about anything other than a worldwide pandemic where the government has closed us down for at least 3 ½ months and possibly longer.”
However in an 8-K filing that the company submitted to the SEC, Norwegian acknowledged that enough uncertainty surrounds the future outlook. For that reason, the company floated the possibility that it may have to file for bankruptcy.
NCLH stock dropped nearly 20% on the news, but is stabilizing. At this point, it’s hard to buy any cruise line stock. However, it’s hard to imagine a future that does not include cruising at some level. And a company that was well run going into the pandemic should be in a good position as we head out of it.
About Norwegian Cruise Line
Norwegian Cruise Line Holdings Ltd., together with its subsidiaries, operates as a cruise company in North America, Europe, the Asia-Pacific, and internationally. The company operates through the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It offers itineraries ranging from three days to a 180-days calling on various ports, including Scandinavia, Northern Europe, the Mediterranean, the Greek Isles, Alaska, Canada and New England, Hawaii, Asia, Tahiti and the South Pacific, Australia and New Zealand, Africa, India, South America, the Panama Canal, and the Caribbean.
Read More - Current Price
- $26.04
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $27.60 (6.0% Upside)
#6 - Anheuser Busch InBev (NYSE:BUD)
Anheuser Busch InBev (BUD) RSI Score = 42.56
If your social media timeline looks anything like mine, it might be hard to imagine that a brewery would be having a hard time. But this teaches an important lesson about investing. Volume matters. No matter how much beer individuals may be purchasing to keep themselves sane and comforted during this period of sheltering, that revenue pales in comparison to what Anheuser Busch (NYSE:BUD) makes from bars and restaurants.
The world’s largest brewer got a double whammy from the coronavirus. In January and February, the company’s sales in China were badly affected. Then just as China started to recover, the United States, Brazil, and other key markets were shut down. This is leading the company to forecast that the second quarter may be “materially worse” than the first. As evidence of that, BUD reported a 32% sales decline in April. That was far steeper than the 9.3% decline it recorded in the first quarter.
However, this does look like a short-term obstacle. As the economy begins to re-open, the company should benefit from pent-up demand.
About Anheuser-Busch InBev SA/NV
Anheuser-Busch InBev SA/NV produces, distributes, exports, markets, and sells beer and beverages. It offers a portfolio of approximately 500 beer brands, which primarily include Budweiser, Corona, and Stella Artois; Beck's, Hoegaarden, Leffe, and Michelob Ultra; and Aguila, Antarctica, Bud Light, Brahma, Cass, Castle, Castle Lite, Cristal, Harbin, Jupiler, Modelo Especial, Quilmes, Victoria, Sedrin, and Skol brands.
Read More - Current Price
- $55.19
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $79.00 (43.1% Upside)
#7 - General Electric (NYSE:GE)
General Electric (GE) RSI Score = 39.67
General Electric (NYSE:GE) is perhaps being made guilty by association. Just as the company looked like it might be getting its footing from the cost-cutting and restructuring instituted by CEO Larry Culp, the company’s aviation sector is under pressure due to the ongoing problem with Boeing (NYSE:BA).
It certainly didn’t help the company that in his address to shareholders, Warren Buffett singled out General Electric as a company that would be affected by the challenging business environment that awaits airlines and airline suppliers in the wake of the Covid-19 pandemic.
Speaking in a webcast, Buffett theorized that even in a best-case scenario, there will be too many planes in inventory. Said Buffett, “[T]he real question is whether you need a lot of new planes or not. And when you’re likely to need them,” Buffett said during the question-and-answer period. “And it affects a lot of people…It affects General Electric.”
Culp acknowledges that it’s back to the drawing board for GE’s Aviation business. However, analysts still believe in the turnaround story. They give GE a 12-month price target of $9.80, which would give shareholders a 60% gain from current levels.
About General Electric
General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products. The company operates in the United States, Europe, China, Asia, the Americas, the Middle East, and Africa.
Read More - Current Price
- $177.98
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $200.93 (12.9% Upside)
#8 - Kimco Realty (NYSE:KIM)
Kimco Realty (KIM) RSI Score = 48.93
Kimco Realty (NYSE:KIM) is one of the frustrating casualties of the Covid-19 pandemic. The real estate investment trust (REIT) was one of the most affected businesses when its commercial real estate tenants were forced to shut their doors.
A REIT relies on the monthly income it receives as rent. So Kimco was not about to sit idly by as their tenants faced an uncertain future. The company instituted a pilot tenant assistance program (TAP). The goal of the TAP is to help its tenants navigate the confusing work needed to find and apply for federal and state loans.
Kimco CEO Conor Flyn said, “We were nervous about time. We are not ones to wait for the government. We figured we had to act quickly.”
In addition to the TAP program, Kimco is covering legal expenses to help its tenants find and apply for government-sponsored disaster relief loans. Furthermore, the company offered a rent deferral program to smaller tenants who could not pay their April rent.
About Kimco Realty
Kimco Realty Corp. is a real estate investment trust (REIT) headquartered in New Hyde Park, N.Y., that is one of North America's largest publicly traded owners and operators of open-air shopping centers. As of December 31, 2018, the company owned interests in 437 U.S. shopping centers comprising 76 million square feet of leasable space primarily concentrated in the top major metropolitan markets.
- Current Price
- $25.09
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $24.14 (3.8% Downside)
#9 - Colgate-Palmolive (NYSE:CL)
Colgate-Palmolive (CL) RSI Score = 47.23
At first glance, it would seem that a stock like Colgate-Palmolive (NYSE:CL) would benefit from consumers stocking up on the company’s products. But initially, the company’s supply chain was being affected. However, that did not seem to affect the company’s fortune very much. In its most recent earnings report the company posted slight beats on the top and bottom lines. CL stock is basically flat for the year,
Analysts are optimistic about the future direction of the stock based on its relatively strong performance compared to its decline during the Great Recession. The stock was drawing bullish sentiment from hedge funds. To be fair, this may be a short-term play. This is particularly true as the nation begins to open up. However, even as more Americans begin to experiment with a new normal, there will be many that choose for a variety of reasons to stay indoors. And that would bode well for CL stock.
And value investors can take comfort in the fact that Colgate-Palmolive is a dividend king. This means it has increased its dividend every year for at least 50 years. This is particularly appealing as the Federal Reserve has announced that interest rates to near zero will be the case for the foreseeable future.
About Colgate-Palmolive
Colgate-Palmolive Company, together with its subsidiaries, manufactures and sells consumer products in the United States and internationally. It operates through two segments: Oral, Personal and Home Care; and Pet Nutrition. The Oral, Personal and Home Care segment offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin health products, dishwashing detergents, fabric conditioners, household cleaners, and other related items.
Read More - Current Price
- $93.91
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $105.11 (11.9% Upside)
#10 - Cedar Fair (NYSE:FUN)
Cedar Fair (FUN) RSI Score = 46.77
You’d have to be crazy to invest in a theme park like Cedar Fair (NYSE:FUN). I mean, you might be bullish on an entertainment giant like Disney (NYSE:DIS), but what is the attraction of investing in a stock like Cedar Fair?
Well, for starters, prior to the pandemic the company was delivering strong financial performance. Cedar Fair reported record net revenue and attendance for all of its parks was up 8%. But with theme parks closed down for the foreseeable future due to the Covid-19 pandemic, is all hope lost?
Not according to CEO Richard Zimmerman who has laid out a specific health and safety plan for Knott’s Berry Farm and other Cedar Fair properties. Some of the steps the company will take include advanced reservations, reduced attendance, virtual queueing, cashless transactions, and social distancing.
On a conference call with analyst, Zimmerman said, “I am confident that our industry and Cedar Fair specifically can develop and execute new operating procedures to address sanitization and social distancing best practices.”
About Cedar Fair
Cedar Fair, L.P. owns and operates amusement and water parks, as well as complementary resort facilities. Its amusement parks include Cedar Point located on Lake Erie between Cleveland and Toledo in Sandusky, Ohio; Knott's Berry Farm near Los Angeles, California; Canada's Wonderland near Toronto, Ontario; Kings Island near Cincinnati, Ohio; Carowinds in Charlotte, North Carolina; Kings Dominion situated near Richmond, Virginia; California's Great America located in Santa Clara, California; Dorney Park in Pennsylvania; Worlds of Fun located in Kansas City, Missouri; Valleyfair situated near Minneapolis/St.
Read More - Current Price
- $46.09
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $55.92 (21.3% Upside)
One of the keys to investing in oversold stocks is to understand that in many cases, these are not stocks you are looking to hold for the long-term. There is a herd mentality to investing. Once the big money starts pulling out of a stock, individual investors start to head for the exits. This frequently creates a situation where the stock falls below its fair selling price.
However, this may simply be a short-term opportunity. Once the market finds its balance these stocks may get range-bound at their fair price.
Major events like the Covid-19 pandemic and the Great Recession, or even the tech wreck of late 2018, create buying opportunities for astute investors. When investors look at the market today, it may be hard to find value. You have to be willing to do a little digging to identify companies that may be slightly underperforming relative to the market.
The companies in this presentation may still face some headwinds, but they present some unique opportunities as the market continues to recover from the effects of the novel coronavirus.
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