“Buying the dip” has worked for S&P 500 investors throughout this bull market. And now investors might wonder which stocks battered in September offer the biggest opportunities.
Analysts see 55% or more upside in 11 beat-up stocks in the S&P 500, S&P Midcap 400 and S&P Small Cap 600 indexes, including health care play Invacare (IVC), real estate company GEO Group (GEO) and consumer discretionary Las Vegas Sands (LVS), says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. All these stocks are down 10% or more from where they were trading when the S&P 500 peaked on Sept. 2 — putting them in a correction, or worse.
Opportunistic investors might think it’s time to buy the dip. The market’s swift sell-off left stocks $925 billion, or 1.8%, cheaper since the September peak, says Wilshire Associates. That’s enough of a discount to tempt some bargain hunters.
Savvy long-term growth investors know to focus on the companies and stocks with accelerating profit, sales and stock prices. That’s where you’ll make the most money long term. But it’s hard to blame investors looking at short-term sell-offs as a way to try to make big gains.
“Buying the dip has been a good, even great strategy for the past decade, but sooner or later it won’t be,” said George Ball, chairman of Sanders Morris Harris in Houston.
The Siren Song Of Buying The Dip
Buying stocks on the decline is a risky proposition. But it’s one that’s worked recently, at least with the S&P 500.
Loading up on the S&P 500 each time after it dropped below its 50-day-moving average this year resulted in a nearly 4% average gain in just a week, says a July analysis from Bespoke Investment Group. Compare that to the S&P 500’s usual weekly gain of just 0.06% since 1945.
“Average one-week returns following downside crosses show just how strong the buy-the-dip impulse has been this year,” Bespoke found.
And buying the dip paid off longer term, too. Buying the S&P 500 following a drop below the 50-day moving average this year yielded a one-month gain of 5.7%.
What Dips Wall Street Likes Most
Nearly all analysts’ top picks for dip buying are battered small caps. Seven of the 11 stocks that are down 10% or more from September, which analysts see the most upside in, are small companies.
Take Invacare as an example. Shares of the $200 million market value medical equipment distributor are down a crushing 37.5% from the market’s Sept. 2 high to 5.36 a share. That’s not just a 10% correction, but a full-fledged bear market-type decline.
Even so, analysts are holding out hope the stock in 12 months will jump more than 80% to 9.67 a share. Analysts think the company will post a small profit in the fourth quarter of 2021. And they’re calling for revenue growth to return this year. Analysts think Invacare’s revenue will rise nearly 4% in 2021 to $880.9 million.
Some Buy The Dip Opportunities In S&P 500
Not all buy-on-the dip favorites, though, are money-losers. GEO is a profitable real-estate investment trust with an $850 million market value. Real estate is a hot area in the market and a leading S&P 500 sector. And yet, shares of the small-cap real-estate company are down nearly 11% from the market’s September high to 7.11. Analysts, though, think the company will be worth 79% more than it is now in 52 weeks. Much of that’s based on the premise the Florida-based firm will earn an adjusted $1.37 a share in 2021, up more than 5%.
What about the big-caps? Las Vegas Sands, a casino operator with properties in Macau, is the sole S&P 500 stock down 10% or more from the market’s September high that’s expected to jump 55% or more by analysts. Following a crackdown on gambling by the Chinese government, shares are off 15% from Sept. 2 to 37.28. But analysts think it’s headed to 58.07 in a year’s time. And if they’re right, that’s nearly 56% upside.
Clearly, buying on the dip is risky business. Analysts might be forced to lower their expectations. But right now, speculators like their odds.
“While the S&P 500’s ability to repeatedly bounce at its 50-day moving average this year has been impressive and even historic, enjoy it while it lasts. We can guarantee that it won’t last forever,” Bespoke said.
Analysts’ Top ‘Buy The Dip’ Candidates
Here are S&P 1500 stocks down 10% or more from Sept. 2, 2021 peak with 55% or higher upside, according to analysts.
|Company||Ticker||Index||From Sept. 2 market high||Sector||Implied upside*|
|Invacare||(IVC)||S&P 600||-37.5%||Health Care||80.3%|
|GEO Group||(GEO)||S&P 600||-10.7||Real Estate||79.3|
|Medifast||(MED)||S&P 600||-10.1||Consumer Staples||77.3|
|WW International||(WW)||S&P 600||-13.7||Consumer Discretionary||67.1|
|U.S. Silica Holdings||(SLCA)||S&P 600||-14.7||Energy||65.1|
|Simulations Plus||(SLP)||S&P 600||-14.7||Health Care||64.2|
|United States Steel||(X)||S&P 400||-18.8||Materials||63.7|
|PROG Holdings||(PRG)||S&P 400||-11.0||Financials||63.1|
|Las Vegas Sands||(LVS)||S&P 500||-15.3||Consumer Discretionary||55.8|
|Nu Skin Enterprises||(NUS)||S&P 400||-17.9||Consumer Staples||55.1|
Sources: IBD, S&P Global Market Intelligence, * — to analysts’ 12-month price target
Follow Matt Krantz on Twitter @mattkrantz
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