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.
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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.
Source:Pexels
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.”
5. United Parcel Service, Inc. (NYSE:UPS)
52 Week Range: $123.12 – $172.75
Current Share Price: $128.55
Number of Hedge Fund Holders: 44
Market Capitalization as of September 3: $110.11 Billion
United Parcel Service, Inc. (NYSE:UPS) is a freight and logistics company that provides shipping services in the U.S. and across the globe. It offers international air and ocean freight forwarding, post-sales, and mail and consulting services.
It is one of the best beaten-down stocks to invest in as it is well-positioned to benefit from an improved macroeconomic environment on the U.S. central bank cutting interest rates. While its underperformance has everything to do with fluctuations in shipping demand and pricing, things are improving amid shipping volume growth in the U.S.
Domestic shipping volume increased by 1% in Q2 compared to the previous year, marking the first positive outcome in nine quarters. There was also a rise in demand across sectors such as air cargo and global export markets, which is seen as a positive sign. The business anticipates a wider recovery in the latter part of the year, accompanied by an improvement in the operating profit margin.
While United Parcel Service, Inc. (NYSE:UPS)’s second-quarter earnings totaled $1.79, missing estimates of $1.98 a share, they are poised to receive a boost heading into year-end. Revenues totaled $21.8 billion, missing estimates of $22.2 billion.
The logistics company raising its full-year revenue forecast to $93 billion from the previous forecast of between $92 billion and $94.5 billion affirms improving business conditions. United Parcel Service, Inc. (NYSE: U.P.S.) plans to accelerate growth by expanding its footprint in Mexico with plans to acquire small package provider Estafeta. It also plans to enhance its logistics services for the healthcare sector and small and medium-sized businesses.
The deep pullback close to 52-week lows has left United Parcel Service, Inc. (NYSE:UPS) trading at a price-to-earnings multiple of 17, much lower than the average P/E of 26 for the industrials. This means that the stock is trading at a discount with solid revenue growth prospects on robust underlying fundamentals.
According to Insider Monkey’s database, the number of hedge funds with stakes in United Parcel Service, Inc. (NYSE:UPS) increased from 43 to 44 by the end of June.
ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Our industrial holdings weighed on relative performance as we are more exposed to transports such as “less than truckload” provider X.P.O. and parcel delivery company United Parcel Service, Inc. (NYSE:UPS), which are struggling with weak volumes during the post-COVID freight recession. With industry volumes down to pre-COVID levels and strong pricing power in the LTL space in particular, we believe that the next upcycle will prove to be very strong for earnings. As a result, we added to X.P.O. in the quarter while reducing our position in UPS on concerns that industry capacity remains excessive. Meanwhile, we have less exposure to electrical equipment stocks, which have been rewarded by views that they will benefit from the buildout of A.I. data centers.”
4. Chord Energy Corp (NASDAQ:CHRD)
52 Week Range: $145.35 – $190.23
Current Share Price: $148.43
Number of Hedge Fund Holders: 56
Market Capitalization as of September 3: $9.18 Billion
Chord Energy Corp (NASDAQ:CHRD) is an energy company specializing in exploring and producing crude oil, natural gas, and natural gas liquids within the Williston Basin. It acquires, explores, and produces crude oil, natural gas, and liquids in the Williston Basin.
While Chord Energy Corp (NASDAQ:CHRD) has come under pressure, it is one of the best beaten-down stocks for income-focused investors. The company boasts a high trailing yield of 7.55%, paying 53% of its profit through dividends. Additionally, the company allocates more than 75% of its free cash flow to dividends and buybacks, affirming its commitment to returning optimum value to shareholders.
In addition to returning value to shareholders, Chord Energy Corp (NASDAQ:CHRD) has also been strengthening its business empire as it looks to bolster its revenue streams. It has already completed the acquisition of Enerplus, strengthening its presence in the Bakken region. While the merger is expected to deliver increased annual synergies, it should allow the company to generate more free cash flow that it can use to distribute to shareholders.
The company delivered solid second-quarter results with adjusted EBITDA of $567.9 million and adjusted free cash flow of $216 million. It returned 75% of the free cash flow at $197 million and repurchased shares worth $61.77 million. After pulling back significantly close to its 52-week low, the stock trades at a discount with a price-to-earnings multiple of 7.
As of the end of the second quarter of 2024, 56 hedge funds out of the 912 funds tracked by Insider Monkey had stakes in Chord Energy Corp (NASDAQ:CHRD). The most significant stake in Chord Energy Corp (NASDAQ:CHRD) is owned by Michael Rockefeller and Karl Kroeker’s Woodline Partners, which had a $126.47 million stake in Chord Energy Corp (NASDAQ:CHRD).
Madison Small Cap Fund stated the following regarding Chord Energy Corporation (NASDAQ:CHRD) in its first quarter 2024 investor letter:
“Our Energy underweight was also a slight drag, although we are optimistic about our singular investment in this sector with Chord Energy Corporation (NASDAQ:CHRD). During Q1 the company announced a strategic combination with Canadian-based Enerplus Corporation (TSX: ERF). Enerplus is one of, if not the best remaining assets in the Bakken and we are very constructive on the financial and strategic merits of this transformational deal. CHRD will become the largest operator in the Bakken, representing about 12% of the basin’s production. With a solid balance sheet post deal, CHRD will now be in the enviable position of either the basin’s main consolidator or most strategic asset as a target for larger E&P companies.”
3. Albertsons Companies, Inc. (NYSE:ACI)
52 Week Range: $19.25 – $23.88
Current Share Price: $19.62
Number of Hedge Fund Holders: 59
Market Capitalization as of September 3: $11.36 Billion
Albertsons Companies, Inc. (NYSE:ACI) is a consumer defensive company that operates food and drug stores. Its food and drug retail stores offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
It is one of the best beaten-down stocks to invest in as it is currently trading at a discount close to its 52-week lows on navigating competitive pressures and evolving consumer habits. Albertsons Companies, Inc. (NYSE:ACI) has since embarked on strategic initiatives in response to the negative market conditions, and it looks to reinvigorate its growth metrics.
The company is increasingly investing in its Customers for Life Strategy, and the digital and omnichannel capabilities are expected to continue driving year-over-year growth. Consequently, it delivered solid first-quarter results that affirmed the resiliency of its core business.
Adjusted earnings met expectations, coming in at $1.18 billion as the company registered a 1.4% increase in identical sales. Net sales totaled $24.3 billion from $24.1 billion a year ago. The increases were driven by a 14% increase in sales surge in the pharmacy sector as digital sales increased by 23%
During the same timeframe, Albertsons Companies, Inc. (NYSE:ACI) has kept a gross profit margin of 28.42%, showing its capacity to produce profits compared to its income. While trading at a price-to-earnings multiple of 8, Albertsons is trading at a low earnings multiple relative to its peers, affirming potential undervaluation.
In the second quarter of 2024, 59 hedge funds had stakes in Albertsons Companies, Inc. (NYSE:ACI). As of Q2 2024, Stephen Feinberg’s Cerberus Capital Management is the top shareholder in the company and has a position worth $3 billion.
2. Occidental Petroleum Corporation (NYSE:OXY)
52 Week Range: $55.04- $71.19
Current Share Price: $56.98
Number of Hedge Fund Holders: 62
Market Capitalization as of September 3: $53 29 Billion
Occidental Petroleum Corporation (NYSE:OXY) is an energy company that engages in acquiring, exploring, and developing oil and gas properties. It explores, develops, and produces oil and condensate natural gas liquids (NGLs). It also manufactures and markets basic chemicals, including chlorine, caustic soda, and chlorinated organics.
The company has been in the limelight after billionaire investor Warren Buffett acquired 2.57 million shares, underscoring why it is an exciting pick in the energy sector. Nevertheless, the stock has remained subdued, trading close to its 52-week lows due to macroeconomic headwinds impacting the oil process.
Nevertheless, with the possibility of aggressive rate cuts, the oil outlook remains bullish, translating to booming business for Occidental Petroleum Corporation (NYSE:OXY).
Occidental has already affirmed its commitment to reducing its debt and enhancing its credit performance. During the initial eight months of the year, the company paid off $2.3 billion in debt. As credit performance continues to improve, the stock sentiments should improve and, therefore, edge higher from current lows.
Additionally, it’s worth mentioning that in the second quarter, Occidental Petroleum Corporation (NYSE:OXY) disclosed a free cash flow of $1.3 billion. Despite the lower oil prices, the oil and gas exploration firm is in a strong position to achieve an annual free cash flow of $5.2 billion.
The free cash flow is expected to expand due to the possibility of oil prices increasing. This development will aid in reducing debt. Concurrently, there’s a high chance of significant capital expenditures aimed at ensuring consistent production growth. Improved cash flow should allow the company to continue rewarding investors with dividends going by the current 1.54% dividend yield.
By the end of the second quarter of 2024, the number of hedge funds with stakes in Occidental Petroleum Corporation (NYSE:OXY) increased to 62, up from 61 in the previous quarter. These stakes are collectively valued at over $18.5 billion.
1. Schlumberger Limited. (NYSE:SLB)
52 Week Range: $42.61 – $62.12
Current Share Price: $42.49
Market Capitalization as of September 3: $32.98 Billion
Number of Hedge Fund Holders: 67
Schlumberger Limited (NYSE:SLB) is one of the best beaten-down stocks for diversifying an investment portfolio in the energy sector. The company provides technology for the energy industry, focusing on Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
The company’s competitive edge stems from its robust clientele base, including major global oil corporations, Petrobras and Saudi Aramco. Additionally, the company is well positioned to benefit from oil majors ramping up production on economic growth, receiving a boost from lower interest rates.
Additionally, Schlumberger Limited (NYSE:SLB) is seeing a strong resurgence of activity in the oil and gas business driven by long-cycle development and capacity expansion projects. Oil prices finding support above $75 a barrel is positive for the oilfield services industry, for which the company is one of the big players.
The major player in oilfield services reported adjusted earnings per share (EPS) of $0.85, better than the consensus estimate of $0.83. The company’s quarterly revenues surpassed expectations, reaching $9.14 billion, surpassing the $9.08 billion predicted.
The company’s revenue saw a 5% increase from the previous quarter and a 13% growth compared to the year before, showing substantial expansion in an improving market. This growth was due to a wide range of international earnings and increased margins across all its divisions.
Schlumberger Limited (NYSE:SLB) is poised to continue experiencing steady growth in overseas markets, robust online sales, and cost reduction initiatives. This will support additional margin growth and help achieve its goal of increasing full-year adjusted EBITDA in the mid-teens.
With the stock trading at a price-to-earnings multiple of 14 and close to its 52-week lows, it remains one of the best beaten-down stocks to invest in, especially for its 2.50% dividend yield. As of the end of the second quarter of 2024, 67 hedge funds tracked by Insider Monkey Database held stakes in the company.
Here is what Artisan Value Fund said about Schlumberger Limited (NYSE:SLB) in its fourth quarter 2023 investor letter:
“On the downside in Q4, our two energy holdings, Schlumberger Limited (NYSE:SLB), the world’s largest oil services company, and E.O.G. Resources, a U.S. shale-focused E&P company, were weak along with the broader sector. We have stringent criteria for business quality, which is particularly important in commodities sectors as these businesses do not control the underlying commodity prices, which can be volatile. We expect Schlumberger to continue to successfully navigate market volatility and deliver on its free cash flow and profit margin growth objectives from combination of activity growth and pricing gains. The stock has been among our top contributors since we initiated our position in December 2020.”
The best beaten-down stocks to invest in are companies trading at discounted valuations with tremendous upside potential. However, given that the artificial intelligence arms race is just but starting, there are under-the-radar A.I. stocks trading at highly discounted valuations that hold greater promise for anyone looking to diversify their portfolio. If you are looking for an AI stock that is more promising than the top activist investment plays, check out our report about the cheapest AI stock.
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