While an inherent risk exists in moving against conventional wisdom, at the heart of any truly powerful investment thesis is the spirit of contrarianism; that is, having the fortitude to bet on a dynamic or trend that has yet to actually materialize. After all, once an event is no longer an act of faith, it usually ceases to be a robustly attractive opportunity.
And that’s also the underlying theme of the Relative Strength Index or RSI. According to Barchart, the RSI is a trading tool, with the main purpose being to “measure the market's strength and weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market.”
In other words, the RSI is a contrarian indicator, with the implied action running counter to our intuition. Specifically, a “high” reading is potentially “bad” – the market could be overcooked, meaning that most or all of the good news has been baked in. Therefore, the subsequent move could be in the southern direction.
In contrast, a “low” reading is possibly “good” – the market is undervalued or underappreciated, suggesting that little to no good news has been considered. Once more investors recognize the opportunity, the security could shoot skyward.
Now, it may take a very long time to individually check all however-many-thousand stocks there are to find which ideas may be underdeveloped, so to speak. Fortunately, we have RSI Oversold, one of Barchart’s free stock screeners. Here, Barchart does the heavy lifting for you, picking out compelling ideas for further analysis.
Here are two that risk-tolerant speculators may want to consider.
Werewolf Therapeutics (HOWL)
Based in Watertown, Massachusetts, Werewolf Therapeutics (HOWL) falls under the broader biomedical ecosystem. Per its public profile, Werewolf is involved in the “development of conditionally activated therapeutics engineered to stimulate the body's immune system for the treatment of cancer.” It really hasn’t performed well this year, with HOWL stock losing nearly 54% of equity value since the start of the year.
Still, not all hope may be lost. No, it’s not a profitable enterprise and that has some investors worried. However, the loss per share over the past four quarters came out to 27.3 cents. While not the best statistic, it should be noted that the average expected loss among analysts was nearly 40 cents per share. So, the “earnings” surprise actually stands at just under 30%.
Admittedly, what has really detracted investor sentiment is the top-line erosion. In the trailing 12 months (TTM), the company posted sales of $16.22 million. However, in the most recent quarter, the sales “growth” rate slipped to 83.4% below parity. For fiscal 2024, experts believe that sales may slip 83% to $3.4 million. That’s not good.
However, a recovery could take place in fiscal 2025, with sales potentially rising to $12.03 million. Moreover, the most optimistic analyst believes that a print of $50 million is possible. It’s worth noting that HOWL stock features a unanimous strong buy rating.
On the technical charts, there appears to be a long-term support line at the $2 level. We’re getting very close to that point at $2.14 prior to the July 4 holiday. This could be one of the RSI Oversold stocks to buy.
Workhorse Group (WKHS)
Once one of the most talked about entities in the broader electric vehicle space, Workhorse Group (WKHS) has unfortunately suffered a severe fall from grace. The company is focused on manufacturing electric-powered trucks and drones for zero-emission last-mile deliveries. Certainly, given the wider pivot toward green solutions, Workhorse offers a relevant narrative. Unfortunately, the market doesn’t seem to care.
Sadly, that’s largely due to Workhorse being unable to recover from losing out on the U.S. Postal Service’s long-term contract to replace its mail-carrier vehicles. That one news item (or lack of news, however you want to look at it) devasted the enterprise. Management is trying to claw its way back, to its credit. However, the market isn’t having any of it, with WKHS stock falling more than 81% year-to-date.
Financially, it’s problematic that Workhorse posted a loss per share of $2.75 in the past four quarters. Analysts were anticipating a loss of $2.25. During the TTM period, revenue was $12.74 million. However, in the most recent quarter, the sales “growth” rate was nearly 21% below parity.
Still, here’s the thing to focus on: covering experts believe that in fiscal 2024, revenue could jump to $25.09 million, up 91.6% from last year. And in fiscal 2025, sales could hit $85.67 million. The high-side estimate calls for $140.91 million.
On the technical charts, WKHS stock may have printed what’s known as a matching low pattern: on July 2 and July 3, the intra-day low and the closing price sat identically at $1.36. Generally, market analysts believe that this pattern signals a possible reversal. Therefore, Workhorse could be one of the RSI Oversold stocks to buy.
On the date of publication, Josh Enomoto 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.
