We recently compiled a list of 10 Worst Performing Stocks to Buy on the Dip. In this article, we will look at where Mobileye Global Inc. (NASDAQ:MBLY) ranks among the worst performing stocks to buy on the dip.
Capital markets demonstrated increased volatility starting in August 2024 and continuing in September 2024. That being said, strong rallies followed numerous negative performance days. Therefore, these movements have helped keep the stocks moving in an overall positive direction. Market experts believe this is a great time to invest in equities. For those having money in cash, the current juncture provides an opportunity to put capital to work in the longer-term assets.
Wall Street experts believe that the markets are concerned about the signs of economic softness. The experts continue to assess how quickly the US Fed will respond to it through the adjustments in the interest rate policy. With the US Fed starting to cut the key policy rates, global money managers continue to figure out whether it is too late, or will the actions support the broader economy and continued corporate earnings growth. The economic environment has now been changed, with inflation falling and the job market appearing to be modestly weaker. The market experts believe that equity market leadership saw a drastic shift, with tech stocks seeing a modest, third-quarter retreat after leading the market’s surge since late 2022.
Q3 Market Rotation and Market Drivers Moving Forward
As per the US Bank, a subsidiary of the U.S. Bancorp, there was a major Q3 shift that took place in the S&P 500. The bank highlighted that the once-dominant technology sectors (IT and communication services), which outpaced other sectors in 2023 and in H1 2024, gave up some gains. As a result of an easing interest rate environment, the investors decided to shift their focus. The US Bank went on to highlight that the biggest Q3 beneficiaries were real estate and utility stocks.
Moving forward, inflation, labor market trends, business spending patterns, corporate earnings, and stock valuations are likely to dominate the broader US equity market. The US Bank mentioned that Q2 2024 earnings saw an increase of over 10% as compared to Q2 2023 earnings. Despite the challenges related to a slowing economy, the earnings expectations have not been changed. Notably, the markets continue to expect continued earnings growth through the remainder of 2024 and 2025. As per the earnings insight report by FactSet (dated September 20, 2024), for Q3 2024, the estimated (YoY) earnings growth rate for the S&P 500 stood at 4.6%. While analysts are expecting YoY earnings growth of 10.0% for CY 2024, they expect ~15.2% for CY 2025.
Amidst Volatility, Markets Will Experience Swift Recovery
The initial seven months of 2024 saw the broader market move forward, with only modest interruption or volatility. After a tough August start, the stocks recovered quickly, and the broader markets again ended the month in positive territory, only to start September on a volatile note. Most of the volatility stemmed from the expectations of a series of Fed rate cuts. This can be considered as the big driver for the broader market, mainly when the economic focus pivots to labor market conditions instead of inflation threats.
Amidst the broad-based volatility, market experts opine that large stocks were able to retain their advantage.
In July, there was an outperformance by the small stocks as the Russell 2000 Small-Cap Index gained over ~10%, compared to a ~1% gain for the large-cap S&P 500. This was mainly because of the prospects of Fed rate cuts, which led to the short-term shift into smaller stocks. However, the rotation to smaller-cap stocks was again sidetracked in August, with the S&P 500 again outperforming mid-cap and small-cap stocks. Over the past month, the Russell 2000 Index saw an increase of ~0.3%, while the S&P 500 Index went up by over ~2%. This demonstrates that, amidst volatility and macro-level changes, well-established stocks should be favored as they provide reasonably good entry points.
Our methodology
To list the 10 Worst Performing Stocks to Buy on the Dip, we used a Finviz screener and online rankings to filter out the stocks that have fallen significantly on a YTD basis. Finally, we ranked the stocks according to their potential upside, as of September 27. We have also included the number of hedge fund holders for each stock, as of Q2 2024, which we sourced from our database of over 900 elite hedge funds.
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).
Mobileye Global Inc. (NASDAQ:MBLY)
Average Upside Potential: 57.12%
% Fall on a YTD Basis: ~65%
Number of Hedge Fund Holdings: 28
Mobileye Global Inc. (NASDAQ:MBLY) is engaged in developing and deploying advanced driver assistance systems (ADAS) and autonomous driving technologies and solutions worldwide.
Several factors have impacted the stock price of Mobileye Global Inc. (NASDAQ:MBLY), with investors’ confidence getting hampered due to the weaker-than-expected outlook for H2 2024 and 3 consecutive reductions in the financial guidance. Investors have become cautious, as the broader technology sector continues to face headwinds, resulting in the revaluation of growth prospects amidst heightened volatility and economic uncertainty. There are concerns regarding Mobileye Global Inc. (NASDAQ:MBLY)’s revenue and profit forecasts as a result of volatile demand for the company’s driver-assistance chips in China. Also, volatility in China impacted the SuperVision projections for 2024. The company has also highlighted the lower adoption rates for lower-level ADAS, attributable to factors like inventory residuals.
That being said, Wall Street analysts and market experts continue to remain optimistic about the company’s future growth prospects. They believe that the growth momentum in EyeQ and SuperVision volumes should continue and that the collaboration with Zeekr on next-generation vehicles should help Mobileye Global Inc. (NASDAQ:MBLY) in its growth journey. Despite the near-term volume challenges in China, the company is optimistic regarding the long-term prospects in the region. Also, the expected recovery of market share with the help of localization efforts and lower-cost solutions should aid Mobileye Global Inc. (NASDAQ:MBLY).
The company continues to prepare for major design wins in SuperVision and Chauffeur by year-end 2024 and targets to be a market leader in these areas. The ramp-up for entry-level ADAS offerings should start in H2 2026 and early 2027.
Analysts at Evercore ISI reiterated an “Outperform” rating, giving a price target of $35.00 on the shares of Mobileye Global Inc. (NASDAQ:MBLY) on 26th August. Out of 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 28 hedge funds reported owning stakes in the company.
Baron Funds, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“We also modestly increased our positions in The Trade Desk and Mobileye Global Inc. (NASDAQ:MBLY). The assisted and autonomous driving solution provider, Mobileye, experienced significant stock price volatility as a result of reporting weak quarterly results on the back of an inventory build-up, which led the company to reduce near-term shipments materially, resetting expectations for 2024. Despite the near-term cyclical correction, we don’t believe the issues are structural, and we are more focused on the continued adoption of Mobileye’s advanced programs such as Supervision, which would increasingly become the key growth driver for the business.”
Overall MBLY ranks 5th on our list of the worst performing stocks to buy on the dip. While we acknowledge the potential of MBLY 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 MBLY 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 on Insider Monkey.
