- These oversold stocks to buy are likely to diverge due to their long-term prospects.
- Charter Communications (CHTR): Healthy and stable growth combined with lots of room for customer expansion make its decline unjustified.
- Xiaomi Corporation (XIACY): This major supplier of electronics to developing countries can profit from their fast economic growth.
- Arrow Electronics (ARW): Robust growth in net income and undervaluation has turned ARW into a highly resistant stock.
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The stock market has been in a long-term decline for the past few months. From their all-time highs, The Nasdaq and the S&P 500 indexes have declined by over 27.3% and 16.4%, respectively. However, the selloff has affected some stocks more than others, bringing some divergent stocks to buy below their intrinsic value.
Consequently, some of these stocks have started showing signals of a reversal. Even though a broader market divergence is not likely due to planned rate hikes, some oversold stocks can still begin diverging from the current decline.
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Companies with sound financial health and a robust growth rate in their customer base and net income are among the most likely to start recovering earlier than others. I have found three such companies that have likely begun their divergence.
Charter Communications (CHTR)
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Charter Communications (NASDAQ:CHTR) is a telecommunications and mass media company with 32 million customers in 41 states. It is the second-largest cable operator in the U.S.
Although many of the largest telecommunications companies haven’t done great financially, Charter Communications could be an outlier. The company has had a stable revenue growth since at least 2010, and in terms of net income, it has also performed exceptionally well.
The company averaged a year-over-year (YOY) quarterly net income growth of 65.4% in the past three years. In the first quarter of 2022, the company saw YOY quarterly growth of 49.07% in net income, putting the annual figure over $5 billion.
In addition, CHTR stock is likely oversold, as it is down 42% from its all-time high back in September 2021. Its current price is well below its pre-pandemic levels. Moreover, the stock is now in a short-term uptrend since May, which could be a signal that CHTR has bottomed out.
Xiaomi (OTCMKTS:XIACY) is the third-largest phone manufacturer after Samsung (OTCMKTS:SSNLF) and Apple (Nasdaq:AAPL). It is likely undervalued, as XIACY stock has now fallen below pre-pandemic levels after a 66% decline that began early this year.
Xiaomi is a major supplier of electronics and mobile devices to developing countries due to its focus on affordable devices. It is also a household brand in these areas, so Xiaomi will undoubtedly benefit from this fast-growing market.
Moreover, the stock seems to be bottoming out after a long decline. If the economic situation does not deteriorate, XIACY stock is set to start diverge.
Arrow Electronics (ARW)
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Arrow Electronics (NYSE:ARW) is a highly undervalued company. It has had robust growth in its revenue and has sustained a consistent increase in its net income.
Arrow’s latest financial results also outperformed most other companies in the electronics sector. In the fourth quarter, its annual net income grew by 70.9% YOY to $1.27 billion, and its annual revenue grew by 14.6% to $35.1 billion.
Moreover, ARW stock has also outperformed the broader stock market due to its undervaluation. The stock is only down by 13.4% from its all-time high, and it is likely to diverge upwards in the long term.
The consumer electronics industry is projected to reach $755 billion this year, and it will continue to grow at a CAGR of 7.2% until 2025. Therefore, companies such as Arrow and Xiaomi are set to profit from this expected growth. Even if these stocks fail to diverge in the short term, it is still likely they will continue on a long-term growth trajectory once the market volatility is over.
On the date of publication, Omor Ibne Ehsan did not have (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.
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