Let’s face it. Investors in 2022 have faced rising interest rates and negative GDP. No, there’s no recession yet; thankfully, the job market is still strong. The July unemployment rate fell -0.1 to 3.5%, matching a five-decade low and showing a stronger labor market than expectations of unchanged at 3.6%. That said, stocks in the first half of 2022 experienced pain unseen since the beginning of the pandemic. And as a result, many stocks are now oversold.
Oversold stocks allow investors to capitalize on short-term downward trends. Investors can use technical indicators, fundamental analysis, and stock metrics to identify the stocks which are both overbought and oversold. And the Relative Strength Index (RSI) is an excellent place to start.
The RSI is a momentum oscillator calculated based on the intensity of recent price movements. RSI is displayed on a scale of 0 to 100, where 100 is the most overbought and 0 is the most oversold. An RSI indication above 70 is considered overbought, 50 is considered neutral, and below 30 is considered oversold. That said, the RSI shouldn’t be confused with a buy indicator- rather, it’s a starting point. Think of it like one large piece of a puzzle.
This article will cover the 3 most oversold dividend aristocrats. Dividend aristocrats are companies that are listed on the S&P 500 and have increased dividends for at least 25 consecutive years. These are companies with durable competitive advantages led by dividend-friendly management committed to returning value to shareholders.
Johnson & Johnson (JNJ)
Johnson & Johnson is a multinational corporation with over 130 years of experience in the healthcare industry. The company manufactures various medical products, from bandages and baby powder to cancer treatments and surgical equipment.Â
JNJ's operations are segmented into three groups:
- Consumer Health provides products based on science and approved by medical experts to help people improve their personal health.
- MedTech’s diverse healthcare expertise and purposeful, innovative technology help save lives and aim to create a future where healthcare solutions are smarter, less intrusive, and more personalized in surgery, orthopedics, and interventional solutions.Â
- Pharmaceutical products are distributed through the Janssen Pharmaceutical Companies.  Janssen envisions a future in which disease prevention, early detection, treatment, and cure will change thanks to its cutting-edge biologics and other medical components.
Analysts set a mean target of $186.33 for the stock, representing a potential 8.6% upside (dividends excluded) from its last trading price.
The company has more than 130,000 active employees and is headquartered in New Jersey, U.S. Additionally, it operates in 60 countries and sells its goods through its 250 subsidiary companies.
The company's current dividend yield of 2.59% may not be the most attractive in terms of dividends. However, long-term investors must consider that the company has increased its dividend for each of the past 60 years. That makes the company both a dividend aristocrat and a dividend king.
With a 14-day RSI of 40.67, JNJ’s stock trades between oversold and neutral. That, coupled with its dividend, makes it a potentially excellent investment opportunity, as the demand for medical services and products is unlikely to diminish anytime soon.Â
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Stanley Black and Decker (SWK)
Headquartered in New Britain, Connecticut, Stanley Black & Decker, Inc. is a diversified global provider of tools and related accessories, mechanical access solutions, electronic security solutions, engineered fastening systems, etc.Â
The company operates in three segments:Â
- Construction & Do-It-Yourself,Â
- Industrial, andÂ
- Security.Â
The Construction & DIY segment manufactures hand tools and sells its products to professional end-users and consumers through retailers, including home centers, mass merchants, hardware stores, and retail lumberyards. Its Industrial segment offers various mechanics tools and storage systems to industrial customers through third-party distributors and direct sales forces. The Security segment provides various mechanical and electronic security products and systems, and various security services to retailers, educational, financial, and healthcare institutions, and commercial, governmental, and industrial customers.
Stanley Black & Decker has an incredible record of paying dividends. The company has paid dividends for 145 years and has increased its dividend for the last 54 consecutive years - making it both a dividend aristocrat and a dividend king. Investors currently receive a respectable 3.37% yield on their common shares.
Stanley Black & Decker’s opening at $93.71 represents a whopping 38% discount over its 200-day moving average of $150.68Â
With a 14-Day RSI of 29.91, the company is trading in oversold territory. That said, Stanley Black & Decker is worth keeping an eye on. In its most recent earnings report, inflation, rising interest rates, and softening demand were to blame for its decreasing growth margin in Q2. Executives also lowered annual guidance for 2022 earnings per share by nearly 50%, driving the company's share price down 20% over the past week.
Final thoughts
There are a few things to keep in mind when it comes to stocks that may be considered "oversold." The first is that while oversold conditions can sometimes present buying opportunities, they can persist for longer than expected or signal further downside. Another thing to consider is that individual stocks can become oversold even if the overall market is not. This means there may be specific reasons why a particular stock is down, and it's essential to do your research before buying.
Finally, it's worth remembering that oversold stocks can still go lower. So, if you're considering buying, have a plan if the stock continues to fall.
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