Call these the most oversold and unloved stocks in the market.
Regeneron, Best Buy, McDonald’s, Procter & Gamble and Dollar General are among the names with the lowest RSI readings. Their relative strength index, which measures momentum relative to price history, is close to or below the 30 mark that suggests oversold conditions.
Not all of those down-and-out stocks deserve to be there, though, according to Joule Financial President Quint Tatro.
“The first thing we look at when stocks are out of favor, especially in such a very strong market like this, is: Why? 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 one that we come to immediately is Regeneron,” Tatro told CNBC’s “Trading Nation” on Friday.
Tatro said that stock has seen recent weakness, after its rally earlier this year on the promise of its experimental Covid-19 treatment, as investors shift to Covid vaccination plays. Regeneron still boasts strong fundamentals, though, he noted.
“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. Well, Regeneron has an exceptional balance sheet — 0.2 debt to equity. That’s a great position to be in,” said Tatro.
Craig Johnson, chief market technician at Piper Sandler, says some of the other oversold stocks could stay that way for longer.
“Let’s take a look at the chart of McDonald’s. This 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,” Johnson said during the same “Trading Nation” segment.
McDonald’s traded at $212.85 on Monday. A move to $198 implies 7% downside.
Procter & Gamble, too, looks as though it could be stuck at oversold conditions for some time, said Johnson.
“This is a distributional looking chart, meaning that it’s kind of rolling over,” he said. “This particular stock has broken through kind of key support at $136. I think your next big area of support comes in at the 200-day moving average, around $127, so, not ready to step up for that one.”
Procter & Gamble traded Monday at $136.62. It would need to fall 7% to reach $127.
