In this article, we will list the 7 best beaten down stocks to invest in.
The equity market is on the cusp of a significant boost as the U.S. Federal Reserve joins other global central banks in cutting interest rates. While stocks have rallied for the better part of the year, as depicted by the S&P 500 gaining more than 17% year to date, three 25 basis point cuts by the Fed could send stocks even higher.
A lower interest rate environment is what the equity markets need; sentiments have taken a significant toll in recent months amid growing concerns about economic growth slowdown. With borrowing costs expected to decrease, companies should access cheap capital to enhance operations, generating more shareholder value.
READ ALSO: Billionaire Carl Icahn’s Top 10 Stocks and 14 Best 52-Week High Stocks to Buy According to Short Sellers.
Some of the best beaten-down stocks to invest in would be some of the biggest beneficiaries, especially if their core operations depend on the interest rate environment. According to Standard Chartered Chief Investment Officer Manpreet Gill, Federal Reserve easing should support stocks as the U.S. economy inches closer to a soft landing.
“Our baseline is still very much that a [U.S.] soft landing is achievable… It almost becomes a little bit more binary, because as long as we avoid that downside risk, equity earnings growth is still very supportive, and we’ve had sort of the positioning clean out in the recent pullback. And I think rate cuts, or at least expectation of those, really was the last piece markets were looking for. So on balance, we think it’s a positive outcome,” Gill said in an interview with CNBC.
As the monetary policy environment is poised to improve, the economic climate should receive a boost to support the overall equity market. Consequently, now would be the best time to pay close attention to the seven best-beaten-down stocks trading close to their 52-week lows. These are stocks well poised to outperform the overall market, their valuation having taken a significant hit.
While valuations in the equity markets, especially the tech sector, have gotten out of hand amid the artificial intelligence frenzy, stocks still offer a high-risk reward opportunity backed by solid underlying fundamentals. Similarly, while financial services sector stocks would be under pressure due to interest rates coming down, software information technology services and payment companies would be some of the big winners.
“We expect [sales] growth to accelerate through the remainder of the year with 5.5% growth in [second half] from 5.0% in [first half], driven by a progressive recovery in I.T. Services, having reached a trough of -2.7% organic growth in [first quarter] and finishing the year with +0.7% growth in [fourth quarter] as discretionary spend recovers,” said Bank of America analysts led by Frederic Boolean in a research note to clients.
Similarly, soaring geopolitical tensions in the Middle East and the uncertainty around the upcoming U.S. election also present an opportunity for investors in the market. Defense stocks offer an opportunity to diversify in anticipation of any market downturn.
Defense stocks are becoming increasingly popular, especially among fund managers at a time of soaring industry profits. Similarly, the stocks continue to outperform the overall market owing to higher defense spending as the government responds to soaring geopolitical risks.
On the other hand, there is also the possibility of the equity market rally stalling even with the Federal Reserve initiating rate cuts. If the cut comes in response to slowing growth, it could take some time before the economy returns. In such a scenario, it would be wise to bet on the best-beaten-down stocks that are well-positioned to remain resilient amid a challenging environment.
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Our Methodology
To make our list of the best beaten down stocks to invest in, we first made a list of stocks trading near their 52-week lows (0-5%) range. We checked the hedge fund sentiment around 15 stocks with the largest market caps and then selected the 7 stocks that were the most popular among hedge funds. We ranked the stocks in ascending order based on the number of hedge funds that own stakes in them, as of Q2 2024.
At Insider Monkey, we are obsessed with 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).
7 Best Beaten Down Stocks to Invest In
7. Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX)
52 Week Range: $99.24 – $143.43
Current Share Price: $102.78
Number of Hedge Fund Holders: 26
Market Capitalization as of September 3: $32.98 Billion
Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) is a beverage company that operates as a bottler of Coca-Cola. It produces, markets, and distributes Coca-Cola’s trademark beverages in Latin America. It is also engaged in producing and distributing coolers and commercial refrigeration equipment.
While the stock is currently trading close to its 52-week low, the underperformance has nothing to do with the company’s operational efficiency. The stock has only come under pressure following the exit of a respected chief financial officer and the uncertainty over the Mexican presidential election.
While everything seems to be an overreaction, Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) remains the largest franchise bottler of Coke products by volume and a growing convenience store business. The company’s bottling operation is a reliable, consistent performer.
Robust growth should come from the convenience store business under the Oxxo brand. Each day, one out of every 10 Mexicans frequents an Oxxo outlet, and the chain is growing its presence in Latin America, aiming to reach the U.S. market eventually.
Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) delivered solid second-quarter results demonstrating robust performance in its main business areas. The company’s total consolidated revenues rose by 12.2% year-over-year. Proximity Americas experienced a notable rise in total revenues, with an 8.9% increase. Meanwhile, Coca-Cola FEMSA saw its revenues grow by 13.1%. The digital services sector also saw considerable growth in its user base, with Spin by OXXO seeing a significant increase in active users, growing by 37.0% to reach 7.9 million.
Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) is one of the best beaten-down stocks to invest in. It is the best 52-week low stock as it trades at a discount at a price-to-earnings multiple of 7. Additionally, it is an ideal play for income-focused investors going by its 2.075% dividend yield. Divestment of non-core assets has allowed the company to reinvest profits into shareholders through share repurchases and dividends.
Shares of Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) were held by 26 hedge funds at the end of Q2 2024 in the Insider Monkey database, with First Eagle Investment Management holding the largest stake of about 9.58 million shares, valued at around $1.03 billion.
6. NetEase Inc (NASDAQ:NTES)
52 Week Range: $80.18 – $118.90
Current Share Price: $80.44
Number of Hedge Fund Holders: 35
Market Capitalization as of September 3: $51.84 Billion
NetEase, Inc. (NASDAQ:NTES) is one of the best beaten-down stocks to invest in to diversify an investment portfolio in China’s communication services sector. The company is a leading distributor of online games, music streaming, online intelligent learning services, and internet content services businesses.
While the Chinese internet giant is trading close to its 52-week lows, signaling underperformance, it continues registering a booming business. It delivered solid Q2 2024 results with net revenues totaling $3.5 billion, up 6.7% per year. The company attributed the increase to the success of its games, including Once Human and Maraca: Bladepoint Mobile, and their continued expansion across various genres and platforms.
Likewise, A.I. integration in game development has led to a 200% year-over-year growth in AI-driven subscription services. NetEase, Inc. (NASDAQ:NTES) is positioned for continued growth amid increased investment in A.I. technology and a diverse gaming portfolio. Its strategic partnership with Blizzard and the development of new titles are anticipated to contribute to future successes.
NetEase, Inc. (NASDAQ:NTES)’s price-to-earnings (P/E) ratio multiple of 11 and its even more enticing adjusted P/E ratio for the past year, as of the first quarter of 2024, at 12.5, shows it is trading at a discount compared to its expected earnings growth. This makes NetEase an appealing investment choice, considering its future growth potential. It also rewards investors with a 3.05% dividend yield, demonstrating its commitment to delivering steady returns.
During the second quarter of 2024, the number of hedge funds tracked by Insider Monkey with stakes in NetEase, Inc. (NASDAQ:NTES) decreased from 41 to 35. Orbis Investment Management held the largest position, with 1.91 million shares valued at $182.28 million.
Polen Emerging Markets Growth Strategy stated the following regarding Net Ease, Inc. (NASDAQ: NTES) in its first quarter 2024 investor letter:
“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”