- Focusing on oversold stocks with favorable risk-to-reward ratios can be a more rewarding strategy for investors.
- Oversold stocks can be identified through P/E ratios, RSI readings below 40, or by analyzing price action near crucial support levels.
- MU, BIIB, and REGN are three stocks that appear oversold and could present substantial buying opportunities for investors seeking recovery plays.
The stock market’s impressive and resilient performance in 2024, with the SPDR S&P 500 ETF up over 21% YTD and trading at all-time highs, has led many investors to chase high-flying stocks at all-time highs. However, this approach can be risky as stocks stretched to the upside might face corrections. Instead, focusing on oversold stocks that offer solid risk-to-reward ratios may be more rewarding.
Identifying oversold stocks can be done using several strategies: valuation metrics like P/E ratios, technical indicators like RSI (with a reading below 40 suggesting oversold conditions), or analyzing a stock’s price action around crucial support levels within a broader uptrend.
Here’s a look at three stocks that appear oversold and may present attractive buying opportunities.
1. Micron Retraces Following Earnings Beat
Micron Technology (NASDAQ:MU), a significant player in the semiconductor industry, recently posted a strong earnings beat on September 25th, but shares have since pulled back. After surging to $114.8 following the earnings report, the stock has retraced to $101.7. Despite this pullback, the stock has found support and looks ready to continue its upward trend, presenting an attractive risk-reward opportunity for investors.
In its latest earnings report, Micron posted an EPS of $1.18, beating estimates by $0.21, with revenue of $7.75 billion, up 93.3% year-over-year. This impressive growth signals Micron’s ability to capitalize on the strong semiconductor demand, particularly in artificial intelligence and data centers. Analysts are bullish on the stock, with a Moderate Buy consensus based on 27 ratings, 25 of which are Buy recommendations. The consensus price target of $142.85 represents a potential 40.5% upside, making Micron an enticing pick.
Additionally, with its RSI nearing 40, Micron is approaching oversold territory. Combined with solid fundamentals and analyst optimism, this indicates that the current pullback may be a compelling entry point for long-term investors looking for a potential recovery play in the semiconductor sector.
2. Biogen Nears Oversold and Undervalued Territory
Biogen (NASDAQ:BIIB), a prominent player in the biotechnology space, has had a challenging year, with its stock down nearly 30% YTD. However, this significant decline has left the stock in both oversold and undervalued territory. Currently trading with an RSI of 36, it might be nearing a potential rebound point. The stock's P/E ratio of 23.4 and forward P/E of 10.82 also suggest a valuation that could attract long-term investors.
Biogen reported strong Q2 results, posting an EPS of $5.28, which beat expectations by $1.28, on revenue of $2.47 billion. While revenue growth was modest at 0.4% year-over-year, the stock’s potential upside is catching analysts' attention. Biogen holds a Moderate Buy rating, with analysts forecasting a 47% upside, making it a prime candidate for investors looking to capitalize on a turnaround.
Beyond technical indicators, institutional inflows into the stock further underscore the interest in Biogen as a potential recovery play. Over the past twelve months, inflows have reached $3.57 billion, compared to $2.24 billion in outflows, signaling confidence among institutional investors that the stock’s current valuation might be an attractive entry point.
3. REGN Finds Support Near Its 200-day SMA
Regeneron Pharmaceuticals (NASDAQ:REGN), another biotech heavyweight, has pulled back into a critical support level at its rising 200-day simple moving average (SMA), currently near $1,000. The last time the stock hit this major moving average, it surged from $900 to nearly $1,200 within four months. With the stock now trading just above $1,000, history could be about to repeat itself.
Regeneron’s Q2 earnings beat estimates by a wide margin, with EPS of $11.56 surpassing estimates by $2.63 and revenue of $3.55 billion, a 12.3% year-over-year increase. The stock’s RSI is now hovering around 30, signaling oversold conditions. With earnings set to be released on October 31, a positive report could propel Regeneron back upward. Analysts are optimistic, with a consensus price target indicating more than 10% upside potential.
Regeneron’s impressive historical performance, robust financials, and strong earnings potential make it a stock to watch as it approaches critical technical support levels. The stock could be poised for a sharp recovery if the company delivers another earnings beat in its upcoming report.