It’s been a rough year for many stocks. And that includes several stocks that outperformed the market in 2021. One strategy that forward-thinking investors employ is to look for oversold stocks. One way to identify such stocks is by looking at a stock’s relative strength indicator (RSI). An RSI of 30 or lower indicates a stock that is oversold. However, any number under 50 suggests there could be bearish sentiment.
The question for investors, however, is which of these stocks are oversold for a reason and which are just oversold? This article looks at five stocks that are down significantly in 2022. Each one has dropped for a reason but gives investors reason to believe there could be a turnaround story in 2023.
Generac Holdings Inc. (NYSE: GNRC)
Generac stock is down over 72% in 2022. The company is known for its home generators. But the company supplies a range of products, including power generation equipment and energy storage systems for its residential, light commercial, and industrial customers.
The concerns about GNRC stock include the threat of competition and the idea that once customers purchase their products, they won’t need to replace them. This has caused investors to sour on the company even though it has beaten earnings estimates for the last four quarters.
Investors will be watching to see if the company’s revenue and earnings topped out in the second quarter of this year. Still, with the stock 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, which is 148% higher than its current price.
Costco Wholesale Corporation (NASDAQ: COST)
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 (and all-time) high it set earlier this year.
Like many retailers, Costco is under pressure as investors fear the consumer is running out of steam. In addition, retail numbers for November came in weaker than expected. And analysts are suggesting the holiday season may be more vulnerable than expected.
The company has been beating on earnings this year, and revenue is up year-over-year. One key for investors to watch will be subscriber retention. So far, this has been no problem for the warehouse club. And if that continues, it will likely allow COST stock to justify its premium valuation. That’s because if consumers continue their membership, they will likely prioritize shopping at Costco (where they can also get gas) above other locations.
Tesla, Inc. (NASDAQ: TSLA)
Do you remember when TSLA stock was considered grossly overvalued? It seems like a long time ago, but it was only last year. But in 2022, TSLA stock is down 57% even though the company is profitable and is increasing deliveries 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 considerable number of shares, ostensibly to help finance his purchase of Twitter. And, oh, by the way, Musk himself was claiming that TSLA stock was overvalued.
Nevertheless, the bullish case for Tesla comes down to fundamentals. The company has a profit margin nearly double the sector average, and the projections are for solid revenue and earnings growth in the next five years. That means it’s likely that TSLA stock will justify its premium valuation. If it does, buying shares now will be a good investment.
Medtronic PLC (NYSE: MDT)
It’s been a roller coaster ride for shareholders of the medical device maker. Shares plunged at the onset of the pandemic as demand for elective medical procedures cratered. In fairness, investors probably overcorrected to the upside in 2021. But another overcorrection is happening, with the stock down over 25% in 2022.
There is a legitimate concern regarding product recalls. The company has reported 23 such recalls in the last two years. That compares to an average of five per year in the prior four years. And the company lowered its earnings guidance in its most recent earnings report.
But once you look past the noise, value investors see a company that has grown its dividend in each of the last 45 years and currently has a yield of over 3.5%. And with MDT, a stock trading at a forward price-to-earnings ratio of 14x, it looks like an excellent choice for income investors.
NextEra Energy Partners, LP (NYSE: NEP)
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 sliced through 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 approximately 727 miles of natural gas pipelines. This allows the company to generate strong free cash flow. And the company is telling investors that it plans to apply a significant amount of that cash flow to dividend growth in the next few years.
That means at 14x earnings and with a price target of approximately $85, NEP stock looks like a sound choice for both growth and value investors.