In this article, we will discuss the 10 Oversold Growth Stocks to Invest In.
As investors focus on consumer spending in a bid to assess the broader health of the US economy, current data points demonstrate that the fears of recession are now overdone. UBS believes that the excess savings that were built up during the COVID-19 pandemic are now used up, and elevated levels of interest rates seem to be impacting activity, mainly in the housing market. However, as the US Fed moves further with its policy easing cycle, lower rates are expected to ease some downward pressure on the broader economy.
S&P Global mentioned that a risk-averse mood has been clouding the US stock market investor outlook for 4th straight month. That being said, the overall risk sentiment saw some improvement from September’s 16-month low, as per the latest results from the firm’s Investment Manager Index survey.
Forecasts for Q4 2024
As per JP Morgan, the stocks touched their 44th all-time high recently. Technology (+2.5%) continued to dominate the broader market, with Al roadshows demonstrating improved demand throughout the country. While past performance cannot be relied upon, the seasonality says that Q4 2024 acts as a tailwind for the broader US markets. Overall, consumers increase their spending more on retail at the time of the holiday season and the “Santa Claus” rally. However, the bank believes that 3 global events might affect the Q4 2024 asset returns. These include geopolitical tensions, Chinese policy stimulus, and the U.S. election.
Amidst the geopolitical tensions, gold, which generally produces positive returns in Q4 2024, can act as a safe-haven asset. Since the start of the quarter, oil prices have increased too. Therefore, both oil and gold can hedge portfolios. Next, the large bank believes that if further China’s policy support outpaces the market projections of 2 – 4 trillion renminbi (RMB) supplementary bond issuance, there might be another rally in the offing for onshore and offshore equities and commodities. Talking about the elections, the typical seasonality is likely to persist. There can be increased volatility.
Outlook for Growth Stocks
Market experts opine that when there is a reversal in the global interest rate cycle, the growth stocks are expected to outperform. This is because reduced rates help in fueling liquidity in the growth companies.
As per Comerica Wealth Management, the market environments with declining rates and rising profits support the broader equity prices. Moreover, the expectations of the rate cuts led to a change in the investing appetite as these investors are now focused on public companies that are interest-rate sensitive (including the growth stocks). Therefore, B. Riley Wealth Management believes that dividend stocks, telecoms, and consumer staples are some of the sectors that are likely to benefit.
A Wall Street trading desk monitoring the performance of large-cap growth stocks.
Our Methodology
To list 10 Oversold Growth Stocks to Invest In, we used a Finviz screener to extract stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 15x. After getting a list of 25-30 stocks, we narrowed it down to the following 10 stocks having high hedge fund holdings, as of Q2 2024. Finally, the stocks were ranked in the ascending order of their hedge fund sentiments.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Oversold Growth Stocks to Invest In
10) IHS Holding Limited (NYSE:IHS)
Forward P/E (As of 14 October): 11.54x
% Decline on a YTD Basis: ~31%
Number of Hedge Fund Holders: 8
IHS Holding Limited (NYSE:IHS) is engaged in developing, owning, and operating shared communications infrastructure in Nigeria, Sub-Saharan Africa, the Middle East and North Africa, and Latin America.
IHS Holding Limited (NYSE:IHS) has benefited from foreign exchange resets in its revenue contracts post the Naira devaluation and it has renewed and extended contracts with MTN throughout numerous African markets. Despite challenges like the devaluation of the Naira and higher power generation costs, IHS Holding Limited (NYSE:IHS) remained resilient with significant growth potential in Brazil, which is the company’s second-largest market.
Wall Street analysts remain optimistic about the contract renewals and extensions with MTN, which have been secured in Nigeria, South Africa, Rwanda, and other markets. IHS Holding Limited (NYSE:IHS) remains focused on improving its operating profitability, decreasing capital expenditures, and improving cash flow.
In the recent earnings call for FQ2 2024, the company highlighted that cost reduction initiatives are under progress using technology and Al. As per Wall Street, with a strong foundation in contracted revenues, together with a proactive approach to managing risks and leveraging opportunities, IHS Holding Limited (NYSE:IHS) is positioning itself to continue the growth trajectory. The agreement with MTN consists of extensions and renewals of leases throughout the company’s operational footprint. This development is critical as it demonstrates a strengthening of the relationship between 2 companies and can result in strong growth opportunities.
Wall Street analysts expect that the shares of IHS Holding Limited (NYSE:IHS) have an average price target of $7.29.
9) XP Inc. (NASDAQ:XP)
Forward P/E (As of 14 October): 10.91x
% Decline on a YD Basis: ~31%
Number of Hedge Fund Holders: 22
XP Inc. (NASDAQ:XP) offers financial products and services in Brazil.
XP Inc. (NASDAQ:XP) remains focused on growth levers, which include retail investments, insurance, retirement plans, FX, global investments, digital accounts, and corporate and SMB clients. In the recent earnings call, the company highlighted that corporate restructuring remains underway, which focuses on ensuring guidance delivery and disciplined capital allocation. The restructuring also aims to boost profitability and shareholder returns.
XP Inc. (NASDAQ:XP) continues to improve benefits for credit card customers and it has managed costs, resulting in gross profit expansion. In Q2 2024, the company’s client Assets totalled R$1.2 trillion in Q2 2024, reflecting a rise of 14% YoY and 2% QoQ. YoY growth was aided by R$113 billion in net inflows and R$30 billion in market appreciation. The gross revenue came in at R$4.5 billion in Q2 2024, up 5% QoQ and up 21% YoY, primarily due to growth both in its Retail and Corporate & Issuer Services revenue YoY.
XP Inc. (NASDAQ:XP) continues to work on improving its credit card offerings and it plans to make 3 million more clients eligible. Moving forward, the company’s focus on growth levers across various sectors and corporate restructuring, which should be completed by year-end, is expected to act as tailwinds.
XP Inc. (NASDAQ:XP) expects H2 2024 to demonstrate better revenues and net income as compared to H1 2024. As per Wall Street, the shares of the company have an average target objective of $23.00.
8) Herbalife Ltd. (NYSE:HLF)
Forward P/E (As of 14 October): 3.24x
% Decline on a YD Basis: ~55%
Number of Hedge Fund Holders: 29
Herbalife Ltd. (NYSE:HLF) offers health and wellness products in North America, Mexico, South and Central America, Europe, and in other regions.
Herbalife Ltd. (NYSE:HLF) saw an increase in distributor recruiting after implementing new engagement programs. It is rolling out the Mastermind program in a bid to foster growth among top distributor leaders. In a recent earnings call, the company highlighted that positive results from pricing and compensation changes in Latin American markets continue to fuel distributor growth.
Herbalife Ltd. (NYSE:HLF)’s resilience amidst economic headwinds is being supported by strategic initiatives that are targeted at distributor engagement and leadership development. Its focus on reducing debt and leveraging its global footprint supports its commitment to long-term growth and financial stability. With new programs set to launch, together with the dedication to improving distributor success, Herbalife Ltd. (NYSE:HLF) appears to be well-placed for long-term growth.
The company remains optimistic about an increase in new distributors, which builds the foundation for sales growth, and about the Restructuring Program. This program aims to deliver annual savings of at least $80 million beginning in 2025, with at least $50 million anticipated to be achieved in 2024 (an increase from ~$40 million).
Based on actions through June 30, Herbalife Ltd. (NYSE:HLF) highlighted that at least $10 million of savings were realized during Q2 2024. Analysts at B. Riley increased their price target on the shares of the company from $16.00 to $17.00, giving a “Buy” rating on 1st August.
7) Stellantis N.V. (NYSE:STLA)
Forward P/E (As of 14 October): 3.46x
% Decline on a YTD Basis: ~42%
Number of Hedge Fund Holders: 31
Stellantis N.V. (NYSE:STLA) is engaged in manufacturing and marketing automobiles and commercial vehicles.
While the Stellantis N.V. (NYSE:STLA) has been facing challenges, Wall Street remains optimistic about the company’s unique approach to the Chinese market. The company formed a JV with Leapmotor, which is a rising Chinese EV brand. The analysts expect that the strategic partnership targets to leverage China’s cost advantages in EV and battery production and expertise in software and connectivity technologies.
Stellantis N.V. (NYSE:STLA)’s strategy minimizes the direct EBIT exposure in China, which can help in limiting downside risk. It will also enable the company to benefit from the country’s manufacturing efficiencies and technological advancements.
Moreover, Stellantis N.V. (NYSE:STLA)’s product portfolio, mainly its iconic US brands Ram and Jeep, is regarded as a key enabler for long-term growth. These brands offer high-performance and quality interiors, offering a competitive edge in the broader market. As a result, the company sees customer loyalty and can command premium pricing.
Stellantis N.V. (NYSE:STLA) will continue to leverage and expand its competitive differentiators and remains optimistic about its operational and financial performance in 2025 and beyond. As per Wall Street, the shares of the company have an average price target of $22.19.
Ariel Investments, an investment management company, released its Q2 2024 investor letter. Here is what the fund said:
“Finally, multinational automotive manufacturing company, Stellantis N.V. (NYSE:STLA), fell in the quarter as higher interest rates in the U.S. and tapering demand for high-volume combustion engine models resulted in elevated U.S. inventory levels. Nonetheless, pricing outperformed expectations and management reiterated full-year guidance of double-digit adjusted operating profit margin and positive free cash flow. Although we expect discounting to increase as U.S. inventory ages, we maintain a constructive view on the company. We believe STLA’s strong global footprint and unwavering dedication to leading the industry in profitability, operational excellence, and strategic foresight will continue to enhance long-term shareholder value.”
6) Sirius XM Holdings Inc. (NASDAQ:SIRI)
Forward P/E (As of 14 October): 7.66x
% Decline on a YD Basis: ~50%
Number of Hedge Fund Holders: 33
Sirius XM Holdings Inc. (NASDAQ:SIRI) is engaged in operating as an audio entertainment company in North America.
Sirius XM Holdings Inc. (NASDAQ:SIRI) is focused on boosting its subscription and advertising businesses, which include the roll-out of new subscription bundles and targeted IP-delivered advertising utilizing the 360L platform. There are plans to open a European tech hub and the company continues to focus on cost optimization and strategic investments. Overall, Sirius XM Holdings Inc. (NASDAQ:SIRI)’s focus remains on growing its advertising business, updating subscription packages, and growing the talk business (mainly in the podcasting space).
The strategic focus of Sirius XM Holdings Inc. (NASDAQ:SIRI) on enhancing customer experience and leading content portfolios should continue to act as tailwinds. Moreover, Berkshire Hathaway expanded its stake in the company, purchasing an additional 3.6 million shares. The conglomerate now has ~32% of ownership interest. Market experts opine that the company’s potential as a robust consumer brand continues to align with Buffett’s investment principles.
The advanced 360L radios in vehicles, streaming services, and the appeal to younger demographics should continue to provide growth opportunities to Sirius XM Holdings Inc. (NASDAQ:SIRI) in the near term. The market analysts are optimistic about the company’s strong FCF capabilities and potential for growth.
For FY 2024, Sirius XM Holdings Inc. (NASDAQ:SIRI) expects total revenue of ~$8.75 billion and adjusted EBITDA of ~$2.70 billion. Analysts at Barrington Research reiterated an “Outperform” rating on the company’s shares, issuing a $47.50 price target on 15th July.
5) StoneCo Ltd. (NASDAQ:STNE)
Forward P/E (As of 14 October): 7.49x
% Decline on a YD Basis: ~37%
Number of Hedge Fund Holders: 35
StoneCo Ltd. (NASDAQ:STNE) offers financial technology and software solutions to merchants and integrated partners.
StoneCo Ltd. (NASDAQ:STNE)’s core strength is in its Merchant Services Micro-Business (MSMB) segment. This segment has consistently outpaced industry growth rates. Wall Street believes that the company’s strong market penetration and customer acquisition capabilities continue to support total payment volume (TPV) in this segment. The company’s growth strategy remains multi-faceted, which revolves around focusing on expanding its payment processing capabilities, enhancing credit offerings, and developing its software solutions.
The accelerated adoption of PIX in Brazil offers both challenges and opportunities for StoneCo Ltd. (NASDAQ:STNE). While PIX transactions garner lower fees as compared to traditional payment methods, they provide numerous strategic advantages that the company can leverage. The rise of PIX might lead to an overall increase in electronic transactions. This can expand the total addressable market for StoneCo Ltd. (NASDAQ:STNE)’s services.
The company continues to see the potential for market consolidation and targets to maximize value from its assets. Analysts at UBS Group increased their price objective on the shares of StoneCo Ltd. (NASDAQ:STNE) from $17.00 to $18.00, giving a “Buy” rating on 29th August.
Investment management company Ave Maria recently released its fourth quarter 2023 investor letter. Here is what the fund said:
“StoneCo Ltd. (NASDAQ:STNE) provides solutions that enable merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. StoneCo has faced near-term operational challenges because of the pandemic and high levels of inflation in Brazil. The company appears to be moving past these challenges and it appears that the successful integration of the newly acquired software business with its payments business will drive substantial shareholder value longer term.”
4) Dollar Tree, Inc. (NASDAQ:DLTR)
Forward P/E (As of 14 October): 10.95x
% Decline on a YD Basis: ~53%
Number of Hedge Fund Holders: 38
Dollar Tree, Inc. (NASDAQ:DLTR) operates discount retail stores.
Dollar Tree, Inc. (NASDAQ:DLTR) adopted a series of strategic initiatives, which should improve its competitive position and financial performance. Its multi-price point strategy at Dollar Tree stores demonstrates a departure from the company’s long-standing $1 price point model. Wall Street believes that this strategy should help its topline and result in margin expansion moving forward.
The expanded product assortment can help attract a broader customer base, which includes those who were earlier shopping at the higher-priced discount retailers. This strategy can enable Dollar Tree, Inc. (NASDAQ:DLTR) to navigate inflationary pressures and challenges related to rising costs, thereby, maintaining margins. Moving forward, strong brand recognition and an extensive store network are expected to fuel revenue growth. In the recent earnings call, Dollar Tree, Inc. (NASDAQ:DLTR highlighted the success of its multi-price expansion and store growth acceleration strategy.
The company adjusted its FY 2024 consolidated net sales outlook range to $30.6 billion – $30.9 billion. Dollar Tree, Inc. (NASDAQ:DLTR) expects adjusted diluted EPS of $5.20 to $5.60. As per Wall Street, the shares of the company have an average price target of $84.00.
Baird Equity Asset Management, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Consumer discretionary performance was the quarter’s largest detractor. Thematically, our holdings in retail and in particular value retail hurt due to greater-than-anticipated operating challenges amid the persistent inflationary environment. In addition, our expectation that value-based retailers would benefit from consumers trading down, spurring revenue and new customer growth, has not yet materialized in a meaningful way. Of note, Dollar Tree, Inc. (NASDAQ:DLTR) and Five Below delivered disappointing performance.”
3) Dollar General Corporation (NYSE:DG)
Forward P/E (As of 14 October): 12.8x
% Decline on a YTD Basis: ~43%
Number of Hedge Fund Holders: 42
Dollar General Corporation (NYSE:DG) has been on a strategic shift, focusing on a back-to-basics approach. This is targeted at improving core operations and enhancing customer value. It has also made significant strides in addressing several operational issues, such as shrink reduction and resolving supply chain bottlenecks. Dollar General Corporation (NYSEDG)’s efforts to improve price positioning relative to Walmart are being regarded as a positive development by Wall Street. This can strengthen its competitive stance.
Moreover, the improvements in inventory management and in-stock levels can help the company achieve revenue growth in the near term. Also, enhanced price competitiveness, streamlined operations, and strengthened brand perception are expected to act as primary tailwinds. Dollar General Corporation (NYSE:DG) is also focusing on making investments in markdowns to help customers and improve sales. Also, the company plans to increase efforts to gain more market share.
Wall Street also expects that promotions and markdowns in critical categories should drive traffic and assist lower-income customers. As per Wall Street, the shares of Dollar General Corporation (NYSE:DG) have an average price target of $102.79.
Heartland Advisors, an investment management company, released its third-quarter 2024 investor letter. Here is what the fund said:
“Consumer Staples. The convenience store operator Dollar General Corporation (NYSE:DG) was our worst performer during the quarter. The retailer, with more than 19,000 stores, 80% of which are in rural towns with populations of less than 20,000, recently slashed its 2024 earnings guidance, sparking a late-summer sell-off.
Same-store comparable sales and margin guidance were cut meaningfully, implying a significant slowdown in the second half of the year. While some of the troubles may be due to the financial challenges of its core customers, with average incomes of just $35,000, Dollar General is also losing market share because of Walmart’s initiative to reduce entry-level pricing. Management acknowledged a need to invest in promotions to stimulate demand, but they refute concerns that DG needs to invest more in store-level labor.
We exited the position and harvested the tax losses, but we continue to monitor the company’s fundamentals. We’re looking for comparable sales to stabilize driven by promotional activity, a boost in labor investments, and management to downsize store expansion plans to improve free cash flow generation and accelerate deleveraging efforts.”
2) ZoomInfo Technologies Inc. (NASDAQ:ZI)
Forward P/E (As of 14 October): 10.7x
% Decline on a YD Basis: ~42%
Number of Hedge Fund Holders: 43
ZoomInfo Technologies Inc. (NASDAQ:ZI) offers a go-to-market intelligence and engagement platform for sales and marketing teams.
ZoomInfo Technologies Inc. (NASDAQ:ZI)’s broad go-to-market platform and its market position continue to offer strong opportunities for growth. The company’s core offerings consist of sales intelligence, B2B contact and company data, and technographics. ZoomInfo Technologies Inc. (NASDAQ:ZI) recently rolled out a new feature, called Copilot. As per the company’s management, this is expected to act as a catalyst for future growth.
This AI-powered tool focuses on enhancing the capabilities of sales and marketing professionals, providing a competitive edge. As and when businesses focus on leveraging AI to improve their sales and marketing efforts, Copilot can place ZoomInfo Technologies Inc. (NASDAQ:ZI) at the forefront of the trend. The feature aims to improve the productivity and effectiveness of sales teams. Ultimately, this can drive increased adoption and usage of the company’s platform.
ZoomInfo Technologies Inc. (NASDAQ:ZI)continues tofocus on reducing credit risk in the SMB segment. Also, it is shifting sales efforts towards mid-market and enterprise customers. As per Wall Street, the shares of the company have an average price target of $17.39.
Baron Funds, an investment management firm, released fourth quarter 2023 investor letter. Here is what the fund said:
“We were too slow to sell when the probability of a likely thesis change dictated action over inaction. Each investment is like a puzzle. Different pieces are missing in different puzzles. Our process is deliberately slow and is built on collecting and analyzing as much information as possible and building conviction over time. In a highly stressful environment with a wide range of outcomes, a recognized lack of balance with emotions running high, postponing “bad decisions” is often the correct course of action except, when there is evidence of a potential or likely thesis change on the negative side in a bear market. We were often too slow and too timid in running for the exit. For example, when a company’s revenues prove to be less sticky during times of stress despite high average retention rates. ZoomInfo Technologies Inc. (NASDAQ:ZI), the business-to-business (B2B) sales data and software provider readily comes to mind, where we made a mistake selling the stock too slowly, as we did not fully appreciate the extent to which the company oversold unused licenses to its customers, which exacerbated the slowing demand environment, creating a whiplash effect as the license inventory was used up later on, causing revenue growth to decelerate materially.”
1) Humana Inc. (NYSE:HUM)
Forward P/E (As of 14 October): 13.5x
% Decline on a YD Basis: ~43%
Number of Hedge Fund Holders: 71
Humana Inc. (NYSE:HUM) offers medical and specialty insurance products in the US.
Humana Inc. (NYSE:HUM)’s diversified, value-based healthcare delivery and services model continued to be a cornerstone of its success. Wall Street analysts believe that its focus on serving Medicare-eligible and disabled individuals via diversified healthcare delivery and services should continue to act as a primary growth enabler.
Humana Inc. (NYSE:HUM)’s strategy emphasizes leveraging its healthcare delivery and services infrastructure in a bid to improve outcomes and reduce costs. The company’s consistently high Star ratings in Medicare Advantage plans continued to be a key competitive advantage, aiding its market position and attracting beneficiaries. Humana Inc. (NYSE:HUM)’s efforts to enhance its healthcare delivery infrastructure should improve outcomes and cost efficiency over the long term. Wall Street believes that these improvements remain critical as the company plans to differentiate itself in a competitive market and address challenges.
Humana Inc. (NYSE:HUM)’s competitive advantage, stemming from high Star ratings and improving healthcare delivery infrastructure, should aid its future revenue growth. Through leveraging advanced analytics, telemedicine, and integrated care models, Humana Inc. (NYSE:HUM) is expected to improve the efficiency of care delivery. This should result in better health outcomes for members and lower overall healthcare costs.
As per Wall Street, the shares of the company have an average price target of $296.37. Diamond Hill Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Other top Q2 contributors included Humana Inc. (NYSE:HUM) and Boston Scientific Corporation. Shares of health insurance company Humana rebounded from their recent downturn, which was tied to investors’ concerns about weaker-than-expected Medicare Advantage rates for 2025 and was the byproduct of an overall difficult operating environment.”
While we acknowledge the potential of HUM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than HUM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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