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Deep Dive: 15 stocks that have fallen at least 33% but by these measures are still standouts in their sectors

During a year in which more than half of the stocks in the S&P 500 Index have declined 10% or more, you have probably seen the term “oversold” being bandied about.

But what does oversold really mean?

It means you think a stock has dropped too much, based on some quality you expect to fuel outperformance from here.

If you are looking to buy stocks in this jittery market, you had better do some deep research to form convictions, rather than jumping on the bandwagon.

Read: The beginning of the end of the stock market’s correction could be near

Below is a screen of the S&P 500
SPX,
-0.39%

to identify stocks that may be oversold. But first, here are examples of some stocks that may fit the bill.

An example of a stock that may be oversold

Shares of Signature Bank
SBNY,
-7.09%

of New York have fallen 38% in 2022. This is one of the most rapidly growing regional banks. For example, during 2021, the bank grew its commercial and industrial loan portfolio by 79% to $32.9 billion, with loan quality remaining strong as it continued to poach lending teams from rivals.

The stock’s decline this year reflects investors’ change of opinion about virtual currencies. Signature Bank has pioneered banking services for virtual currency exchanges and related institutional clients. The bank also launched Signet, a blockchain-based digital-payments service, in 2020.

The “problem” for the stock seems to be that many people who held it did so only because of the crypto angle, and not because they were excited to see a bank growing its traditional business so rapidly.

Despite investors’ turn against the stock, Signature Bank is expected to continue its rapid growth. All 17 analysts covering the stock polled by FactSet rate the shares a buy or the equivalent, and based on consensus estimates, the bank is expected to increase its earnings per share 48% this year and 22% in 2023. But the stock’s forward price-to-earnings ratio has declined to 8.3 from 18.6 at the end of 2021. In comparison, weighted aggregate forward P/E ratios are 17.2 for the S&P 500 and 12 for the S&P 500 financial sector.

In a report on May 13, Jefferies analyst Casey Haire suggested SBNY was oversold because its 2023 earnings would come in at $20 a share even if its $29 billion virtual currency deposit franchise were stripped out. Based on the closing price of $201.20, that would make for a P/E of 10.1. In comparison, the slower-growing S&P 500 financial sector trades for 11 times the weighted aggregate consensus EPS estimate for 2023.

Two more examples of re-ratings in 2022

Netflix Inc.
NFLX,
-0.60%

has been the worst performer among the S&P 500 so far this year, dropping 69% through May 13, followed by PayPal Holdings Inc.
PYPL,
-1.50%
,
with a 58% decline. What does a payment processor have in common with a video streaming pioneer? Both companies have focused on growth of user accounts in their financial reporting.

But Netflix’s forward P/E ratio has dropped to 16.5 from 45.6 at the end of 2021. So it has gone from a lofty valuation for a rapidly growing tech-oriented company to a valuation below that of the S&P 500. Charles Lemonides of ValueWorks recently suggested the price drop set up a buying opportunity for long-term investors.

PayPal’s forward P/E has declined to 18.5 from 36 at the end of 2021. But the company is expected to increase sales and EPS by double digits in 2023, and it is favored by analysts, as you can see on the screen below.

Screening the S&P 500 for oversold stocks

The S&P 500 was down 15.6% for 2022 through May 13. To list stocks that might have fallen more than they should have this year, we screened the benchmark index as follows:

Share price down at least a third (33%): 56 companies.

Expected to increase EPS and sales by more than their respective sectors in calendar 2023: 28 companies.

At least 75% “buy” or equivalent ratings among analysts polled by FactSet: 15 companies.

Here are the 15 companies that passed the screen, sorted by percentage “buy” ratings:

Company

Ticker

Sector

Estimated sales growth – 2023

Estimated EPS growth – 2023

Forward P/E

Forward P/E – Dec. 21, 221

Share “buy” ratings

Signature Bank

SBNY,
-7.09%

Financials

26.20%

22.36%

8.3

18.6

100%

EPAM Systems Inc.

EPAM,
-2.65%

Information Technology

24.26%

45.62%

31.3

59.7

93%

Match Group Inc.

MTCH,
-2.27%

Communication Services

17.25%

18.46%

28.1

48.5

91%

Intuit Inc.

INTU,
-3.27%

Information Technology

15.89%

18.20%

28.0

51.4

91%

Charles River Laboratories International Inc.

CRL,
-1.95%

Health Care

10.98%

15.07%

19.2

32.8

88%

Salesforce Inc.

CRM,
-1.67%

Information Technology

18.22%

21.68%

33.5

53.5

87%

Align Technology Inc.

ALGN,
-0.48%

Health Care

19.47%

26.93%

24.9

48.7

86%

DexCom Inc.

DXCM,
-3.03%

Health Care

20.08%

39.16%

88.3

150.7

84%

Boeing Co.

BA,
-2.48%

Industrials

19.10%

10825.21%

58.8

43.6

83%

Nvidia Corp.

NVDA,
-2.50%

Information Technology

17.61%

18.85%

29.8

57.8

82%

Bio-Rad Laboratories Inc. Class A

BIO,
-0.60%

Health Care

7.05%

7.41%

33.7

57.7

80%

Take-Two Interactive Software Inc.

TTWO,
+0.16%

Communication Services

29.45%

36.81%

17.9

28.3

77%

PayPal Holdings Inc.

PYPL,
-1.50%

Information Technology

16.47%

23.97%

18.5

36.0

76%

Aptiv PLC

APTV,
-3.07%

Consumer Discretionary

17.31%

51.64%

21.0

35.8

76%

SVB Financial Group

SIVB,
-3.81%

Financials

24.67%

29.10%

11.4

23.0

75%

Source: FactSet

Click on the tickers for more about each company.

Read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

Notes about the data:

Both Signature Bank and PayPal made the cut.

The expected earnings growth for Boeing Co.
BA,
-2.48%

is expected to be so large in 2023 because the consensus estimate for 2022 is a profit of only five cents a share.

Netflix missed the cut because analysts expect the company’s EPS to increase by 10.5% in 2023, below the 16% EPS growth expected for the S&P 500 communications sector.

Facebook holding company Meta Platforms Inc.
FB,
+0.71%

would have made the list, with EPS and sales growth rates expected to exceed those of the communications sector in 2023. However, “only” 71% of analysts polled by FactSet rate the shares a buy or the equivalent.

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