With the market at all-time highs and so many stocks overbought, it makes you want to identify the less-loved companies that are showing potential. The concept is finding companies that are considered oversold but also have a reasonable fundamental reason for moving higher. The following five companies are significantly oversold in the near-term but have stable earnings expectations and room to run higher.
The companies listed are trading at or below their four ATR Keltner Channel, which is achieved when the price has a lengthy retracement. In order for the price to reach this level, it requires a fairly long period of selling.
The Keltner Channel is an indicator that uses volatility bands and a moving average. The moving average in this case is a 50-day exponential moving average. The upper and lower bands use the average true range (ATR) indicator to determine the distance between the moving average and the bands. The average true range measures the difference between the high and low or from the previous day’s close to the next days high or low, whichever is greater. The “true range” therefore includes overnight gaps in the price. The Keltner channel used takes four times the daily ATR and adds it and subtracts it from the 50-day exponential moving average.
The five companies below are in an extreme oversold position against the Keltner Channel, but have stable to rising projected earnings.
Oversold S&P 500 Stock #1: FLIR Systems, Inc (NASDAQ: FLIR)
On August 6, FLIR announced their earnings that came in 23.1% higher that the analyst estimates of $0.52. The company has beaten estimates in three of the last four quarters and received slight positive revisions to it current fiscal year from an estimate of $2.07 to $2.21. Current revenue estimates reflect a stable outlook for the company’s business and the projected 5-year EPS growth rate 6.7% is only slightly below its previous 5-year average of 10.66%.
With the price testing the lower Keltner, a potential reversion to the 50-day exponential moving average indicates a potential $5 move off its current level.
Oversold S&P 500 Stock #2: Evergy Inc (NYSE: EVRG)
The current expectations for the current quarter and current year is reflecting year-over-year increases of 3.8% and 4.5%, respectively. The most recent earnings report that came out on August 5 came out in-line with analyst expectations and has met or exceeded expectations in three of the past four announcements. The company experienced a slight negative revision to current year EPS estimates and a slight positive revision to next year. The company has a current 5-year EPS growth rate of 6.8% compared to the past five-year growth rate of -0.13%.
The price has traded below the Keltner Channel and is near the March low. A move back to the 50-day exponential average is a $9 move form its current price.
Oversold S&P 500 Stock #3: FirstEnergy Corp (NYSE: FE)
FirstEnergy recently beat analyst estimates following its report on July 23 by 5.6%. The stock price dropped precipitously, falling significantly below the lower Keltner Channel. The company has beaten analyst estimates in four of its last four reports. Currently, analysts are expecting revenue growth of 2.4% for 2020 and 3.2% for 2021. Despite the stock dropping, the outlook has remained sable with little change to current and next year EPS. Current 5-year EPS growth rate of -2.4% is similar to the previous 5-year EPS growth rate of -2.09%.
The price is currently testing its support from July and has held this level since the announcement. A reversion with the mean at the 50-day exponential moving average would indicate over a $6.50 move.
Oversold S&P 500 Stock #4: Cisco Systems, Inc (NASDAQ: CSCO)
Cisco currently pays a 3.41% dividend yield, which is higher than the 5-year average of 2.99%. They have beaten analyst estimates in four of the last four quarters and beat estimates in the most recent report by 8.1%. Since the last earnings report, there have been slight negative revisions to current and next year of 1-2%. Current 5-year EPS growth estimates are 6.18% compared to a previous 5-year EPS growth rate of 7.76%.
The price is currently resting on the lower Keltner Channel and with its high dividend yield is an attractive position for dividend investors. A retest of the 50-day exponential moving average would mean a $3.60 move higher.
Oversold S&P 500 Stock #5: Seagate Technology PLC (NASDAQ: STX)
Seagate missed analyst estimates for Q2 by $0.09 or 7%. The result was downward revisions to the current year and next year’s earnings by $0.07 and $0.30, respectively. While the negative revision for the current fiscal year was 1.4%, next year’s negative revision was more significant at 5.4%. The current 5-year EPS projection is 7.85% compared to the historical 5-year EPS growth rate of 7.97%.
After testing the lower Keltner Channel following the earnings report, the price has been consolidating near the $45 area of support. The price is converging with the 50-day exponential moving average with about a $2.55 move. However, a move toward the upper Keltner on a breakout would indicate nearly run of around $7.70.