In this piece, we will take a look at ten oversold midcap stocks to buy. If you want to skip an introduction to technical trading and the stock market in general, then head on over to 5 Oversold MidCap Stocks To Buy.
August seems to have kicked off with speculation, worries, or beliefs that the Federal Reserve might have greater leeway when setting its terminal rate. The U.S. economy and the labor market in particular continue to demonstrate robust second quarter Among these, the latter is particularly worrying (if you don’t want more interest rate hikes) since the central bank has linked the growth in inflation with a tight labor market. However, in a conundrum for policy makers, the wage growth rate is now higher than inflation rates, providing consumers with more leeway to make purchases. While this is good for the economy, since more purchases mean more spending and more growth, on the inflationary front, it also contributes to higher product demand and therefore higher prices.
The latest bit on the macroeconomic data, which helps guide interest rates, is the Labor Department’s Employment Cost Index. This dataset shows that for the twelve months which ended in June, wages and salaries grew by 4.6% and compensation costs for civilian government and workers grew by 4.6%. Reading this data along with the latest inflation release sets the reading at 3% showing that wage growth is indeed leading inflation and providing breathing space to consumers that have battled record high price increases last year.
This optimism, which stems from a combination of falling inflation, strong wage growth, and a rising GDP, has started to reduce the market odds of a recession. However, if we’re to take a look at historical odds and remove current factors from play, then the probability of a recession is high as out of the Fed’s previous nine interest rate hiking cycles, seven did lead to a recession. In a recession, the service sector is one of the first to start laying off employees as customers reduce their spending and leisure activities. Yet, despite the high rate environment which makes taking debt more expensive, U.S. consumers are expected to see higher discretionary cash inflows according to Goldman Sachs’ retail analyst Kate McShane.
These inflows, which basically measure the money available for discretionary spending such as jewelry and vacationing, have grown consecutively over the past six months and will end 2023 with this upward trend for a final growth of 3.2% believes the analyst. This prediction makes sense when we consider that ADP’s latest private payrolls report once again significantly outpaced analyst estimates by showing that 324,000 jobs were added in July. It was also in line with the Labor Department’s salary growth estimate of 4.6%, as the ADP dataset reports an even higher jump of 6.2% in annual pay. Additionally, and perhaps more importantly, the data also shows that the leisure and hospitality industries added more than two hundred thousand jobs. These jobs indicate that on the ground, at least when it came to July, the earliest signs of a recession that we have shared above had not materialized.
The next thing to ask, particularly in the context of this piece, is how higher disposable incomes and economic growth relate to midcap firms. Well, as opposed to their small cap peers, these firms often have higher revenues and larger markets. And, they are also better insulated in an economic downturn as smaller companies are the ones that find it more difficult to maintain operational flexibility in the early days of an economic slowdown. Additionally, mid cap stocks also tend to be priced lower than their large cap peers, providing investors with greater percentage bands for growth and lowering the risks of major losses as might be the case when picking out small cap companies.
While the numerous companies on the stock market can be bifurcated through their fundamentals (namely estimated future cash flows and market performance based on industry trends and sizes), another approach that takes a purely quantitative look at things is technical trading. This involves gauging how rapidly a share price is accelerating, whether the number of shares being traded in a time period is higher than historical levels, and if the current price is ready to cross historical averages. It also involves studying whether a stock might be the target of investor exuberance which can cause it to be oversold or overbought.
With these details in mind, let’s take a look at some highly oversold mid cap stocks, with the top performers being Driven Brands Holdings Inc. (NASDAQ:DRVN), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), and Penumbra, Inc. (NYSE:PEN).
Pressmaster/Shutterstock.com
Our Methodology
To compile our list of the most oversold mid cap stocks, we made a list of companies whose market capitalization range between $2 billion and $10 billion, which have average analyst ratings of Buy or better, and whose Relative Strength Index (RSI) is 30 or lower. The RSI is a simple indicator of oversold or overbought levels, and it is a derivation of the ratio of average positive and negative price changes for a share over a certain time period. The list of ten oversold mid cap stocks to buy is as follows.
10 Oversold MidCap Stocks To Buy
10. Hostess Brands, Inc. (NASDAQ:TWNK)
Latest 14 Day RSI Score: 29.08
Hostess Brands, Inc. (NASDAQ:TWNK) is a food company that makes and sells snacks such as donuts, bread, pies, and cookies. The firm’s earnings have declined consistently over the past couple of years; however, it has beaten analyst EPS estimates in three of its latest quarters. The stock is rated Buy on average, and three analysts covering the stock as of August 2023 have rated the shares as Strong Buy.
As of March 2023, 17 of the 943 hedge funds part of Insider Monkey’s database had bought and owned a stake in Hostess Brands, Inc. (NASDAQ:TWNK). Out of these, the firm’s largest shareholder is Jim Simons’ Renaissance Technologies since it owns 1.5 million shares that are worth $37.9 million.
Along with Driven Brands Holdings Inc. (NASDAQ:DRVN), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), and Penumbra, Inc. (NYSE:PEN), Hostess Brands, Inc. (NASDAQ:TWNK) is a top oversold stock with strong analyst ratings.
9. ZoomInfo Technologies Inc. (NASDAQ:ZI)
Latest 14 Day RSI Score: 26.60
ZoomInfo Technologies Inc. (NASDAQ:ZI) is a software company that provides customer, sales, and other data to marketing and other business divisions. Its second quarter of 2023 earnings beat analyst estimates by a wide margin, but a tough macroeconomic environment made the firm cut guidance for revenue, cash flow, and earnings. This caused the stock price to stumble in late July, but the average share price target still lays out a $10 upside.
By the end of this year’s first quarter, 40 of the 943 hedge funds polled by Insider Monkey had invested in the firm. ZoomInfo Technologies Inc. (NASDAQ:ZI)’s largest hedge fund investor is Mick Hellman’s HMI Capital with a $201 million investment courtesy of 8.1 million shares.
8. Cerevel Therapeutics Holdings, Inc. (NASDAQ:CERE)
Latest 14 Day RSI Score: 23.02
Cerevel Therapeutics Holdings, Inc. (NASDAQ:CERE) is a relatively young biotechnology company that is headquartered in Cambridge, Massachusetts. It focuses efforts on developing treatments for neurological and associated diseases such as epileptic seizures, Parkinson’s disease, and substance abuse disorders. The firm’s second quarter EPS beat analyst estimates but the stock has started on a downward spiral in August which is yet to subside.
17 of the 943 hedge funds had invested in the firm during this year’s March quarter. Cerevel Therapeutics Holdings, Inc. (NASDAQ:CERE)’s largest hedge fund investor is Joseph Edelman’s Perceptive Advisors with an investment that is worth $158 million which comes through 6.5 million shares. Morgan Stanley maintained an Overweight rating on the shares in August while Bank of America downgraded them to Neutral from Buy.
7. Brookfield Renewable Corporation (NYSE:BEPC)
Latest 14 Day RSI Score: 22.36
Brookfield Renewable Corporation (NYSE:BEP) is an American utility company that generates power primarily from renewable and environmentally friendly sources such as hydroelectric plants and solar cells. It has nearly 13 thousand megawatts of generation capacity, and financial performance has been tight lately as Brookfield Renewable Corporation (NYSE:BEP) has missed analyst EPS estimates in three of its four latest quarters.
As of Q1 2023, 17 of the 943 hedge funds part of Insider Monkey’s database had held a stake in Brookfield Renewable Corporation (NYSE:BEP)’s sister shares. Out of these, the largest stockholder is Robert Joseph Caruso’s Select Equity Group since it owns 2.3 million shares that are worth $74.8 million.
7. Perficient, Inc. (NASDAQ:PRFT)
Latest 14 Day RSI Score: 22.14
Perficient, Inc. (NASDAQ:PRFT) is a consulting company that provides supply chain, automation, change management, and other services. Its second quarter earnings missed analyst estimates by a wide margin, leading JPMorgan and Scotiabank to downgrade the shares to Neutral and Sector Perform, respectively.
After digging through 943 hedge fund portfolios for this year’s first quarter, Insider Monkey discovered that 21 had invested in the firm. Perficient, Inc. (NASDAQ:PRFT)’s largest shareholder in our database is Ben Gordon’s Blue Grotto Capital courtesy of its $46 million stake.
Driven Brands Holdings Inc. (NASDAQ:DRVN), Perficient, Inc. (NASDAQ:PRFT), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), and Penumbra, Inc. (NYSE:PEN) are some top oversold midcap stocks.
Click to continue reading and see 5 Oversold MidCap Stocks To Buy.
Suggested Articles:
- 13 Best Big Tech Stocks To Buy Now
- 10 Most Oversold S&P 500 Stocks Right Now
- 12 Best Performing Bank Stocks in 2023
Disclosure: None. 10 Oversold MidCap Stocks To Buy is originally published on Insider Monkey.
Hedge Fund Resource Center