5 Best Depressed Stocks to Buy Now

In this article, we shall discuss the 5 best depressed stocks to buy now. To read our detailed analysis of the global economic outlook in 2022, go directly and see 12 Best Depressed Stocks To Buy Now.

5. Citigroup Inc. (NYSE:C)

Number of Hedge Fund Holdings: 82

YTD Decline (As of November 9): 23.23%

Based in New York, Citigroup Inc. (NYSE:C) is an American multinational investment bank and financial services corporation and is the third largest banking institution in the United States. According to the company’s Q3 2022 returns, Citigroup Inc. (NYSE:C) beat EPS estimates of $1.42 by $0.21, posting earnings of $1.63 per share. Furthermore, the company reported a net income of $3.5 billion on revenues of $18.5 billion in Q3 2022.

On October 27, BMO Capital analyst James Fotheringham lowered the price target on Citigroup Inc. (NYSE:C) to $71 from $76, keeping an Overweight rating on the shares. According to the analyst, although the company’s Q3 2022 returns were mixed, there were some notably slid performances across the Services, Branded Cards, and Retail Services segments of the corporation. Furthermore, Fotheringham asserts that the current resumption of share repurchases by the end of Q3 2022 and the company’s positive dividend payout history, with an annual dividend yield of 4.06% and a quarterly dividend rate of $0.51 per share, serve as catalysts for long-term growth and profitability. At its current discounted valuation, Citigroup Inc. (NYSE:C) provides an ideal entry-point for the long-term investor.

4. ServiceNow Inc. (NYSE:NOW)

Number of Hedge Fund Holdings: 99

YTD Decline (As of November 9): 36.41%

Based in Santa Clara, California, ServiceNow Inc. (NYSE:NOW) is an American software company which specializes in the development of cloud computing platforms to assist companies in regulating digital workflows for enterprise operations.

On October 27, Wolfe Research analyst termed the stock ‘the safest SaaS asset to own into year-end’. The analyst lowered the price target on ServiceNow Inc. (NYSE:NOW) to $475 from $600, maintaining at Outperform rating on the shares. He adjusted his assumptions following the company’s Q3 2022 returns which surpassed consensus across constant currency cRPO, constant currency subscription revenue and operating margins. According to the analyst, the stock is well shielded from macro-economic pressures – something which is not reflected well in the company’s undervalued share price.

As of the second quarter of 2022, investor interest around ServiceNow Inc. (NYSE:NOW) skyrocketed, with 99 hedge funds long the stock, up from 90 in the preceding quarter. Furthermore, in Q3 2022, ServiceNow Inc. (NYSE:NOW) posted an EPS of $1.96, beating estimates of $1.84 by $0.12.

Here is what Baron Funds had to say about ServiceNow Inc. (NYSE:NOW) in their Q3 2022 investor letter:

“ServiceNow, Inc. (NYSE:NOW) is an enterprise software leader offering cloud-based solutions that improve employee workflow efficiency through automation and digitization. The company’s brand, extensive go-to-market reach, and product excellence allowed it to materially grow its business with the largest companies in the world, including 80% of the Fortune 500. As of its latest quarter, the company had over 1,400 customers spending close to $4 million per year on average, and recently announced a $250 million contract with a governmental entity. ServiceNow’s industry-leading customer renewal rates of over 97% underscore the criticality of the company’s solutions to its customers. The stock underperformed as quarterly bookings were negatively impacted by longer-than-expected sales cycles due to macroeconomic dynamics creating a more complex spending environment. In addition, with international revenues accounting for about one-third of the company’s business, investors expect foreign currency and pricing dynamics to generate additional headwinds. We continue to believe in the company’s long-term opportunities as it benefits from digitization initiatives, a unique and growing product line, and strong management team.”

3. The Walt Disney Company (NYSE:DIS)

Number of Hedge Fund Holdings: 109

YTD Decline (As of November 9): 42.66%

Based in Los Angeles, California, The Walt Disney Co. (NYSE:DIS) is an American multinational mass media and entertainment conglomerate. Despite a particularly weak Q3 2022, Wall Street remains confident that the slump is due to macroeconomic pressures and not due to company-specific challenges. The Walt Disney Co. (NYSE:DIS) has voiced plans to increase the ad-free subscription to Disney+ to $10.99, up from $7.99. Furthermore, the company demands commendable brand loyalty and has a firm grip on the content streaming market, making the possibility of a rebound incredibly likely.

On November 9, UBS analyst John Hodulik lowered the price target on The Walt Disney Co. (NYSE:DIS) to $122 from $135, maintaining a Buy rating on the shares. The analyst points out that the company’s Q3 2022 earnings miss is largely attributable to a higher DTC dilution and weaker parks margins. Hodulik adds that although the current macroeconomic climate does pose significant challenges, The Walt Disney Co. (NYSE:DIS) still remains excellently leveraged to make a successful transition to a streaming future.

Here is what Third Point had to say about The Walt Disney Company’s (NYSE:DIS) long-term prospects in their Q3 2022  investor letter:

“As disclosed in our Q2 letter, we reinitiated a significant position in The Walt Disney Company (NYSE:DIS) when the company retested its COVID lows earlier this year. At the current price, Disney is trading for little more than the stand-alone value of its Parks business and a mere 15x ’24 “street” consensus. The company remains early in its Direct to Consumer (“DTC”) transition with a leading market position, and yet the current stock price ascribes negligible value to the streaming business. We believe this is due to questions around the terminal economics of streaming, given large losses being generated today at Disney (>$1 billion dollars last quarter) and stagnating margins at peers such as Netflix. On the last earnings call, management highlighted three items that could lead to an inflection in DTC profitability over the next 12 months: a 38% price increase for Disney+ in the US; moderating growth in cash content expense; and an advertising tier for Disney+ launching in two months that can drive additional ARPU given high demand for the Disney brand amongst advertisers.

While the company has guided to Disney+ achieving breakeven sometime within the fiscal year ending September 2024, the valuation suggests the market remains skeptical. Disney only trades at ~14x the $7 in earnings generated prior to the Fox acquisition, which implies investors don’t expect earnings to meaningfully exceed this figure in the coming years. Hence, the first value driver we highlighted in our last letter is the opportunity for management to optimize Disney’s cost base to drive earnings growth. We believe Disney has ample means to rationalize costs across its operating platform and deliver targeted content for home viewing that does not entail the same cost structure of exclusive theatrical releases…” (Click here to view the full text)

2. Salesforce.com Inc. (NYSE:CRM)

Number of Hedge Fund Holdings: 116

YTD Decline (As of November 9): 39.64%

Based in San Francisco, California, Salesforce Inc. (NYSE:CRM) is an American cloud-based software company which specializes in providing customer relationship management software and applications focused on sales, customer service, marketing automation, analytics and application development. In the third quarter of 2022, Salesforce Inc. (NYSE:CRM) posted an EPS of $1.19, beating estimates of $1.02 by $0.17. Total revenue generated by the company in Q3 2022 was $7.72 billion. In Q2 2022, hedge fund sentiment around Salesforce Inc. (NYSE:CRM) became more favorable, with 116 funds having stakes in the stock, up from 114 in the preceding quarter.

On November 10, Oppenheimer analyst Brian Schwartz lowered the price target on Salesforce Inc. (NYSE:CRM) to $200 from $240, maintaining an Outperform rating on the shares. The analyst’s research mosaic uncovers mixed business trends for the company in Q3 2022. However, Schwartz remains confident that the company has an expansive installed customer base to capitalize upon and a highly profitable subscription revenue stream which is projected to play an important role in shielding the company from the current economic climate. The analyst reiterates that the shares are grossly undervalued and expects that Salesforce Inc. (NYSE:CRM) will conclude its multiple contraction with Cloud Suite driven growth and improve margins.

Here is what ClearBridge Investments had to say about the overlooked potential of Salesforce Inc. (NYSE:CRM) in their Q3 2022 investor letter:

“Software has been a solid long-term performer for the Strategy and a key point of differentiation versus the benchmark. But even recurring revenue businesses enabling digital transformation are not immune from the vagaries of the COVID-19 recovery. Salesforce, Inc. (NYSE:CRM) (-12.8%) has detracted from results due to slowing revenue growth driven by a combination of factors, including pull-forward of enterprise digitization demand during COVID-19, some operational missteps, and lengthening sales cycles.

We believe the company still has ample room for revenue growth across its various platforms and should benefit from budget consolidation as customers seek control over tech spending in a weakening economy. We also see significant room for margin expansion. While we have trimmed our Salesforce (CRM) exposure, we maintain confidence that the stock will rerate to a level that reflects its growth potential.”

1. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holdings: 191

YTD Decline (As of November 9): 35.58%

Based in Mountain View, California, Alphabet Inc. (NASDAQ:GOOG) is an American multinational technology conglomerate holding company which parents Google and several other Google subsidiaries. The stock’s discounted valuation sheds light upon the fact that the market is ignoring the considerable increase in subscription rates of the company’s YouTube Premium services, despite the declining macroeconomic climate. Furthermore, the company’s introduction of Pixel Pass and increased compatibility with YouTube Premium services will pave the way to a Google ecosystem, with skyrocketing subscription rates acting as leverage to attain e-commerce goals.

On October 26, Deutsche Bank analyst Benjamin Black lowered the price target on Alphabet Inc. (NASDAQ:GOOG) to $120 from $130, keeping a Buy rating on the shares. Although the company’s Q3 returns did not meet Wall Street expectations, the analyst contends that the stock is still best-positioned compared to other players in the market. Black expects solid long-term advertising revenue growth driven by Search and YouTube, strong Google Cloud momentum, and option value in other areas. Although the advertisement business suffers due to macroeconomic uncertainties, Google Cloud has shown it is more than capable of covering the advertisement deceleration as it outperforms peers. Furthermore, Alphabet Inc. (NASDAQ:GOOG) has entered into a hiring freeze which will further aid in maximizing operational efficiency.

Here is what Mayar Capital had to say about Alphabet Inc. (NASDAQ:GOOG) in their Q3 2022 investor letter:

“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?

“Google it!”

This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.

Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.

These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.

Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)

You can also take a peek at 13 Best Consumer Staples Dividend Stocks To Buy and Stocks That Will Double in 2023.

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