Bargain-hunting for stocks? As companies recover from the economic beating they took in the last few years, and with tech mostly leading the indexes higher, many stocks still have a ways to go. Indeed, some stocks are just now showing signs of recovery. Some of them come with glowing analyst recommendations, too. But how would you know which one to choose? Simple! Let's use those recommendations with the Relative Strength Index indicator.
What’s the strategy about?
An analyst rating is an industry expert or market analyst's recommended view on a specific asset. This ranges from a “Strong Buy” (highest) to a “Strong Sell” (lowest) based on the consensus of all analyst recommendations. In our case, we won’t just look at those with buy recommendations — we want the cream of the crop. We’ll only be looking at the “Strong Buy” stocks.
Then, we will cross reference the list against their 14-day RSI to identify oversold readings - this means hunting for stocks that trade “at a discount.” Doing so lets us focus only on stocks experiencing extreme selling pressure, the ones near exhaustion, and opens up opportunities for snatching high-quality stocks at huge discounts.
Now, let’s look at some “Strong buy” rated stocks in oversold territory.
Alaska Air Group, Inc. (ALK)
14-day RSI: 27.06%
Alaska Air Group, Inc. is an airline holdings company that operates the Alaska and Horizon airlines. Alaska Air’s primary services focus on three segments: “Mainline,” which offers passenger travel and air cargo, and “Regional,” which provides carriers from third-party partners air transportation via short-distance routes in the U.S. and Canada. Lastly, its “Horizon” segment includes its capacity under CPA (capacity purchase agreements) that is sold to the company. ALK reported a stellar revenue number, with QoQ sales growth of 29.24% in the second quarter. Its earnings also beat analyst estimates by 11.11% at $3.00.
Analyst Ratings
ALK has a strong analyst following with a perfect “Strong Buy” recommendation from 11 analysts. ALK's mean target price is $66.39, and the high target price is $75.00, an upside of 77.30%.
Tapestry Inc. (TPR)
14-day RSI: 25.89%
Tapestry, Inc. is a lifestyle and luxury accessories brand that owns Kate Spade New York, Coach, and Stuart Weitzman. Each brand operates as a company segment that runs its operations, sales, and distribution to third-party customers. While the company is already big with its current market cap of around $7.56 billion, it plans to grow even more prominent by adding brands like Jimmy Choo, Versace, and Michael Kors through an acquisition of its parent company, Capri Holdings Limited for $8.5 billion. Once completed, the company will be among the biggest luxury brands - comparable to LVMH (Louis Vuitton).
Analyst Ratings
Analysts rate TPR as a “Strong Buy” based on 11 Strong buys, 1 Moderate buy, and 1 Hold recommendation. The mean target price for TPR is $51.50, and the high target price is $60.00, an upside potential of 80.34%.
Frontier Group Holdings (ULCC)
14-day RSI: 25.70%
Frontier Group Holdings, Inc. is a holding company operating in the airline industry. It targets leisure travelers looking for airline deals through its ultra-low-cost subsidiary Frontlier Airlines, Inc. ULCC’s flights are offered throughout the United States and non-domestic destinations in the Americas. Flights also offer add-ons for amenities, guaranteed seats, and other bundles for passengers willing to add an extra to their flights. ULCC serves approximately 100 airports throughout its services destination in the U.S. and the Americas. The company has beaten its analyst estimates for several quarters, and its latest quarter exceeded expectations by 10.71%. Frontier’s revenue and net income have also been spectacular, with its net income growth of 646.15% and sales growth of 14.03%. No wonder it’s a highly recommended stock by analysts.
Analyst Ratings
Analysts rate ULCC as a “Strong Buy” based on analysts' 6 Strong Buy, 1 Moderate Buy, and 2 Hold recommendations. ULCC's mean target price is $12.50, and the high target price is $18.00, an upside of 169%.
Final Thoughts
Buying oversold stocks can be an excellent strategy for investors looking for a bargain. However, it is essential to understand that oversold conditions tell you to look first and not buy immediately. Due diligence and research are necessary to know what you are buying. Looking at additional information like buy recommendations adds another filtering layer and removes stocks that even experts are bearish on, adding further context to your analysis.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
