Lately, this has been a market of contrasts. Although impressive performances from stocks like Nvidia (NASDAQ:NVDA) led the S&P 500 to the highest monthly close ever, breadth has been weak. Indeed, looking under the hood, many stocks are making three-month lows.
Idiosyncratic factors have hit several industries. Software, for instance, has been a minefield as investors grapple with underwhelming guidance and the unknown disruption from AI. Meanwhile, energy stocks have declined due to falling oil prices, whereas consumer staples have declined as consumers begin pushing back on higher prices.
These three oversold stocks to buy have suffered as their industries face the abovementioned challenges. However, this is an opportunity, given their long-term track record and bargain valuations at current levels.
Paycom Software (PAYC)
This week, software stocks were in the spotlight after Salesforce (NYSE:CRM) reported underwhelming results, leading to one of the worst daily declines ever in the sector. Unfortunately, Paycom (NYSE:PAYC), a human capital management platform, was also caught up in the selloff. The decline added to the losses the stock had experienced due to product rollout problems.
However, the downturn in PAYC stock is overdone, and the stock is a bargain. Notably, the stock is over 70% below its October 2021 highs and is among the top oversold stocks to buy. The indiscriminate selling of software has created an opportunity for a highly profitable SAAS stock.
Notably, the company has achieved over 30% annual revenue growth over nearly the past decade, excluding 2020. But in 2023, operational missteps in a product rollout led to 23% growth. Still, that’s top-tier growth. Furthermore, the company has maintained operating margins above 20% and very high returns on invested capital.
As of this writing, the stock is trading at one of its lowest valuations. Although growth has slowed, management expects a respectable 10% to 11% revenue growth this year. They have also guided for $720 to $730 million in EBITDA, meaning the stock is trading at a forward EV/EBITDA of 11. Without a doubt, Paycom is just too cheap to ignore.
Hormel Foods (HRL)
Inflation was a tailwind for food and snack companies. But now consumers are pushing back, causing volume declines. As a result, stocks like Hormel Foods (NYSE:HRL) have suffered, and it’s one of the most oversold stocks to buy. No one should count out the maker of the iconic SPAM brand. It has a long track record of execution.
Amid the uncertain consumer environment, management is working on strategic growth priorities. Already, these initiatives are bearing fruit. The food service segment had an impressive first half of the fiscal year 2024, with growing volume, net sales and segment profits. In Q2 2024, volumes grew by 3% and net sales by 6%.
Furthermore, the company is investing in its brands to boost growth. A good example is increased advertising spending on the Planters Snack Nuts business, which it acquired from Kraft (NASDAQ:KHC) in 2021. Due to these brand-building and innovation efforts, the brand saw momentum in volume and sales growth.
Taking it together, management will return this Dividend King to growth. For now, it’s cheap. Management expects adjusted diluted net EPS of $1.55 to $1.65, which means that HRL stock trades at 20 times forward earnings. As a bonus, you earn a 3.65% dividend that stands out due to the 59 years of dividend growth.
Schlumberger (SLB)
Oil services giant Schlumberger (NYSE:SLB) reported impressive results on April 19. However, the stock price declined in May due to weaker oil prices and has been down 7% over the past three months. If you are looking for oversold stocks to buy in energy, SLB stock fits the bill.
Clearly, the stock price has diverged from fundamentals, which presents an opportunity. In Q1 2024, revenues were $8.71 billion compared to $7.7 billion in Q1 2023, representing 13% year-over-year growth. Additionally, adjusted EBITDA surged 15% to $2.06 billion.
Due to the positive energy demand outlook, Schlumberger’s business momentum continues. International and offshore operators need its equipment and services to boost production and reservoir recovery.
Additionally, the company is positioned to benefit from the focus on emission reductions. Through a combination with Aker Carbon Capture (OTCMKTS:AKCCF), it now has a proven platform with leading technology. These carbon capture and sequestration and lower-carbon technologies will be a source of future growth.
At a trailing EV/EBITDA multiple of 10x and a forward P/E ratio of 13, SLB stock is too cheap. Morgan Stanley’s (NYSE:MS) Mike Wilson agrees and includes the stock in his high-quality growth list. In short, SLB is a bargain stock and also a hedge against geopolitical flare-ups or higher oil prices.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.