We recently published a list of 10 Most Oversold S&P 500 Stocks in 2024. In this article, we are going to take a look at where The Estée Lauder Companies Inc. (NYSE:EL) stands against other most oversold S&P 500 stocks in 2024.
Strong economic growth and the prospect of declining interest rates continue to support gains in global equities. That being said, elevated valuations over the past 2 years, mainly in the US, have put global stocks in a vulnerable position, opines Goldman Sachs Research. By the close of last year, the S&P 500 saw one of its strongest 2-year periods of returns since the year 1928. Much of this increase demonstrates better fundamental growth than investors had expected, with higher valuations acting as a significant contributor.
Diversification Remains the Key, Says Morgan Stanley
As per Morgan Stanley, while several investors continue to favour recently successful approaches, like passive exposure to the broader S&P 500 Index, a more diversified investment strategy might provide better risk-adjusted returns. The benchmark US equity index remains richly priced and excessively concentrated. The 10 biggest stocks in the S&P 500 index make up for ~40% of its total market capitalization, making it excessively dependent on certain mega-cap tech companies continuing to exceed ambitious performance forecasts.
=With the S&P 500 anticipated to post a marginal 7% return in 2025, other regions, sectors, and asset classes might become more attractive, says Morgan Stanley. Generally, the stocks and bonds have an inverse relation, offering a natural hedge in diversified portfolios. However, the current trends have demonstrated that such assets are moving in tandem, with both witnessing losses simultaneously, as was seen in 2022. Morgan Stanley believes that the higher bond yields and lower bond prices have been coinciding with lower stock prices. This trend highlights the importance of diversifying beyond traditional asset classes to mitigate risks.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Lies Ahead for the S&P 500?
While there are expectations of equity markets making further progress over the year as a whole — largely fueled by earnings — they have become vulnerable to a correction either due to higher bond yields and/or disappointments on growth in economic data or earnings, says Goldman Sachs. A fall in interest rates has been related to robust equity returns. In the US, the US Fed’s rate-cutting cycles have often coincided with higher stock prices as long as the broader economy avoids recession.
Amidst a favorable backdrop, Goldman believes that 3 main factors complicate the outlook for the stock rally. First, the pace of recent gains reflects much of the optimism the analysts expect regarding economic growth. Second, elevated valuations might limit the forward returns. Finally, the third factor is the unusually high market concentration. As per Peter Oppenheimer, chief global equity strategist and head of Macro Research in Europe, equities tend to be more vulnerable to growth disappointments due to increased concentration of equity market returns.
Therefore, investors are required to focus on companies trading at reasonable valuations, and that have strong fundamentals.
Our Methodology
To list the 10 Most Oversold S&P 500 Stocks in 2024, we used a screener and filtered out the stocks present in the S&P 500 Index. Next, we shortlisted the ones that have declined significantly over the past year. Finally, we mentioned the hedge fund sentiment around each stock, as of Q3 2024. The stocks are arranged in ascending order of their hedge fund sentiments.
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).
A close-up of a makeup artist carefully applying Makeup Products to an clients face.
The Estée Lauder Companies Inc. (NYSE:EL)
% Decline In 1 Year: ~51.8%
Number of Hedge Fund Holders: 49
The Estée Lauder Companies Inc. (NYSE:EL) is engaged in manufacturing, marketing, and selling skin care, makeup, fragrance, and hair care products. The company’s stock has seen the brunt of slowdowns in its 2 crucial markets. These are Mainland China and the travel retail sector. Furthermore, the global geopolitical uncertainty continues to impact its stock price. However, Piper Sandler upgraded the shares of The Estée Lauder Companies Inc. (NYSE:EL) to $98 and has reiterated its “Overweight” rating. The company’s management of costs, together with revenue growth potential, can result in a quicker recovery in total shareholder return.
Despite the challenges, The Estée Lauder Companies Inc. (NYSE:EL) has a portfolio of highly respected and globally recognized brands. Its strength in prestige beauty and skincare places it well to capitalize on long-term trends in the overall beauty industry. The company has announced it is expanding its PRGP (Profit Recovery and Growth Plan), which includes the restructuring program. The expanded plan focuses on further transforming the operating model to finance a return to sales growth, restoring a robust double-digit adjusted operating margin over the next few years, and continuing to manage external volatility, including potential tariff increases.
Appleseed Fund, an investment management company, released its third-quarter 2024 investor letter and mentioned The Estée Lauder Companies Inc. (NYSE:EL). Here is what the fund said:
“Appleseed Fund added four new names to the portfolio in the past six months: The Estée Lauder Companies Inc. (NYSE:EL), Willis Lease Finance (WLFC), Diana Shipping (DSX) and Gravity (GRVY). Estée Lauder is one of the world’s largest producers of cosmetics products, and valuation has become very attractive as this premier beauty company is suffering from a post-COVID-19 hangover.”
Overall, EL ranks 4th on our list of most oversold S&P 500 stocks in 2024. While we acknowledge the potential of EL 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 time frame. If you are looking for a deeply undervalued AI stock that is more promising than EL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.