Retail investors and larger-scale investors such as hedge funds are constantly on the lookout for cheap and oversold stocks that are expected to see fresh buying coming in. Battered stocks with heavy insider buying, stocks with low price-to-earnings multiples, and stocks with relative strength indexes (RSI’s) under 30 are among the groups of battered equities poised to appreciate in the future.
This article will lay out a list of five stocks with RSI’s below 30 that are favored by the hedge funds tracked by Insider Monkey. But what does RSI mean and what does the value of 30 stand for? The relative strength index is one of several technical indicators known as momentum oscillators. The RSI is computed by using the average gains and losses of a security over a specified time period, with 14 days being the most commonly used timeframe. This indicator has a value between zero and 100, with the zero value indicating that a stock closed in the red for 14 consecutive trading sessions. Hence, as a stock’s RSI falls below the 30-level and moves closer to the zero level, technically-oriented investors tend to go on the offensive and buy the seemingly oversold security. That said, let’s have a look at the hedge fund sentiment towards five seemingly oversold stocks.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5. Fibria Celulose SA (ADR) (NYSE:FBR)
– Hedge Funds With Long Positions (as of March 31): 13
– Aggregate Value of Hedge Funds’ Holdings (as of March 31): $60.40 Million
– 14-Day RSI: 6.49
There were 13 asset managers followed by Insider Monkey that had equity investments in Fibria Celulose SA (ADR) (NYSE:FBR) at the end of March, up from ten recorded at the end of December. The overall value of those investments rose by 69% during the first quarter, to $60.40 million, even though the company’s American Depositary Shares (ADSs) lost 33% during the quarter, so top investors were buying on weakness, which the stock is now experiencing again. The Brazilian wood pulp producer has lost 48% of its market value since the beginning of 2016. Fibria Celulose enjoyed strong stock performance last year, as Brazil’s currency registered the largest plunge among the world’s major currencies. However, the combination of a recovering real and falling prices of wood products have put massive weight on the company’s performance this year. Just recently, Fibria Celulose’s management said it that was anticipating “very good” sales in the second quarter, as Chinese buyers were returning to the market to restock inventories after using them up to force down prices. Israel Englander’s Millennium Management added a 1.17 million-ADS position to its portfolio during the March quarter.
#4. Mirati Therapeutics Inc. (NASDAQ:MRTX)
– Hedge Funds With Long Positions (as of March 31): 14
– Aggregate Value of Hedge Funds’ Holdings (as of March 31): $161.57 Million
– 14-Day RSI: 5.58
The number of hedge funds in our system with long positions in Mirati Therapeutics Inc. (NASDAQ:MRTX) decreased to 14 from 15 during the first three months of 2016, while the aggregate value of those positions fell by 18% to $161.57 million. Those 14 funds amassed a whopping 39% of the company’s outstanding common stock. The clinical-stage biopharmaceutical company focused on developing targeted oncology products has seen the value of its stock plummet by 82% since the beginning of 2016. The disastrous performance was mainly attributable to a freshly-issued update on three ongoing clinical programs in patients suffering from non-small cell lung cancer (NSCLC) and other solid tumors. The developer of cancer therapies said its glesatinib showed promising results in a Phase 1b clinical trial in patients with NSCLC, but most patients enrolled in the trial experienced dose reductions or interruptions due to episodes of diarrhea. Baker Bros. Advisors, founded by Julian Baker and Felix Baker, was the owner of 3.27 million shares of Mirati Therapeutics Inc. (NASDAQ:MRTX) on March 31.
Let’s head to the second page of this article where we’ll discuss the hedge fund sentiment towards three other popular stocks with RSI’s under 30.