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3 mega cap stocks approaching oversold status

Oversold stocks

Ever since the prospect of rate cuts became suddenly very real last November, equities as a whole have been enjoying some of their best weeks in years. The benchmark S&P 500 index is flirting with all-time highs and is now up more than 16% in less than three months. 

However, not all stocks have been enjoying the fruits of this risk-on sentiment. For one reason or another, the three stocks listed below are lagging behind their peers, and all have relative strength index (RSI) readings that are close to oversold.

The RSI looks at a stock’s performance over the previous 14 days and gives a number between 0-100. Anything above 70 is considered overbought, while anything below 30 is considered oversold. Watching out for stocks with low RSIs can be one of the best ways to spot a bargain, so let’s jump in and see what’s going on with these three laggards. 

Tesla Inc (NASDAQ: TSLA)

With an RSI of 28, Tesla shares are officially oversold, according to that technical indicator at least. They’re down 20% in the past three weeks and coming dangerously close to forming a downtrend. This is because since last summer’s rally peaked, there have been two more tops, all lower than the last. This series of lower highs is rarely a good thing for a stock’s prospects, but for now, at least, Tesla has avoided setting lower lows. 

For a stock that has so often outpaced not just its peers but the S&P 500, Tesla’s divergence has not gone unnoticed. Goldman named them one of the better stocks to own earlier this week, noting that companies with weak pricing power typically outperform as EBIT margins improve. Similarly, Bank of America just listed them as a stock set to outperform now that investors are back in a growth mindset due to falling rates.

The slump in its value has also brought Tesla’s price-to-earnings (PE) ratio down to 68, its lowest level in nearly four years. This further adds to the case that Tesla stock is selling for a bargain right now that mightn’t be around for much longer. 

Exxon Mobil Corporation (NYSE: XOM)

Exxon’s shares have been selling since last September’s all-time high. They’re on track to have four down months in a row, and their RSI is unsurprisingly low as a result. While not yet in fully oversold territory, at 35, it’s pretty close and worth watching. 

This under-performance is set to change, though, according to the team at Redburn. They upgraded their rating on Exxon shares just last week, moving the stock to a Buy rating from Neutral. They consider the stock to be attractively valued compared to its peers while also having the “most compelling growth story” out of all the big energy names. 

MarketBeat’s MarketRank tool also has Exxon rated a Buy, and with a street-high price target of $150, the targeted upside of some 55% should also start being realized in the near term. Shares did put in a fresh low yesterday, so it might be worth waiting for some consolidation first as confirmation that the bottom is in. 

UnitedHealth Group Incorporated (NYSE: UNH)

Despite UnitedHealth managing to top analyst expectations for their Q4 earnings earlier this month, their shares have still been coming under pressure. Having come within a few cents of an all-time high in early December, they found themselves down as much as 10% yesterday before recovering into the close. 

At 38, UnitedHealth has the highest RSI of the three stocks listed here, and while it’s not technically in oversold territory yet, that doesn’t mean there’s not a bargain to be had. Even though its shares have softened somewhat in recent weeks, they’re still less than an 8% move to a new all-time high. And considering how UnitedHealth shares were bought all the way into yesterday’s close, there’s clearly enough demand on the sidelines to make that happen. 

Bearish comments from Humana Inc (NYSE: HUM) yesterday wouldn’t have done them any favors, but if anything, that dip is looking like a solid entry opportunity as a result. Looks for the stock to continue gaining into the weekend, as its multi-month uptrend is still very much intact. 

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