5 stocks that look “extremely oversold”

How do you find stocks? There's no silver bullet. But if you’re a regular reader of either Livewire or Market Index, you may already be familiar with the various screeners we use (and which you can also use) to help uncover ideas worth further investigation.

One of these we feature regularly is Kerry Sun’s “oversold and overbought” weekly series. He uses the relative strength index to identify potential stock ideas.

What’s the RSI?

The relative strength index is an indicator that measures share price momentum, tracking the speed and scale of the change in company valuations. Kerry’s series of articles looks at companies that have recently presented with RSIs of below 30 (oversold) or above 70 (overbought).

In the following, I’ve ratcheted this up slightly to find “extreme oversold” stocks that last week saw their RSI dip below 20. Please note, however, that we've also changed the RSI from a 14-period RSI (which is standard across most trading platforms) to a 5-period RSI. 

Note: Don’t rely on any single metric or, in fact, any combination of them, for your portfolio decisions before getting professional financial advice. The following doesn’t consider your individual circumstances and so should only be considered general information.

ANZ Group Holdings (ASX: ANZ)

ANZ’s share price fell by almost 7% between the end of July and the start of last week. The stock has recovered some ground since then but remains almost 5% down for the month.

The share price is also 16% below the five-year point of $29 hit in mid-August 2021. This follows the Australian Competition and Consumer Commission’s scuppering of ANZ’s planned $4.9 billion takeover of Suncorp’s banking division at the start of the month – a decision the bank is set to appeal at the Australian Competition Tribunal.

On the back of ANZ’s Q3 FY2023 capital update delivered on 17 August, Morgan Stanley analysts Richard Wiles and Sally Hong, CFA, on 17 August reaffirmed their view on the smallest of Australia’s big four banks. They set a rating of EQUAL-WEIGHT and a price target of $25.20, down from $25.70.

“Capital and credit quality are in line with our expectations, although the loan loss charge was materially lower,” said Wiles and Hong.

Impaired assets increased by 5% quarter-on-quarter, now comprising around 0.18% of all loans on the bank’s books.

The impairment charge (an accounting term used to describe a drastic loss in the recoverable value of an asset) on ANZ’s balance sheet declined to $77 million in the third quarter 2023, from $217 million in the previous quarter.

The rate of loan payments in its Australian book that were at least 90 days overdue ticked up by just 0.3% in the quarter and by 0.7% in its New Zealand business.

ANZ shares traded at $24.34 when the market closed on Friday 25 August.

Coles Group (ASX: COL)

The profits and earnings of Australia’s major supermarket players have so far held up well in the tougher economic climate, with better-than-expected consumer resilience reflected in top-line revenue growth at Coles and Woolworths (ASX: WOW). But Coles faces more difficulties ahead, with both likely to both face tougher margin growth from here, as Elston Asset Management’s Bruce Williams indicated last week.

“Across the group level, Woolies did a better job with their expense lines, and they're further ahead in the investment curve which reinforces their position," he told Livewire’s Sara Allen after Coles announced FY23 results last Tuesday.

Coles posted revenue slightly ahead of analyst consensus but its reported EBIT of $1.86 billion disappointed the market. In response, the share price opened more than 3% down at $16.66 on the day. It has since fallen another 4.5%, closing at $15.90 on Thursday.

The share price is currently down more than 17% from its five-year high point of above $19 set on 19 August.

On the back of the result, Morgans analyst Alexander Lu downgraded Coles to HOLD from Add and lowered his price target to $16.90 from $19.85.

Jefferies analyst Michael Simotas responded similarly, downgrading the company to HOLD from Buy and reducing his PT to $17.50 from $21.50.

JPMorgan and CLSA analysts Bryan Raymond and Richard Barwick left their ratings unchanged, at UNDERWEIGHT and UNDERPERFORM, respectively. But both cut their PTs, Raymond dropping his to $15.80 from $17, while Barwick lowered his to $16.70 from $19.10.

Coles share traded at $15.91 when the market closed on Friday 25 August.

Evolution Mining (ASX: EVN)

The gold and copper producer and explorer on 18 August reported revenue of $2.23 billion for FY23, in line with analyst expectations. But the miner’s net profit of $205 million was a sizeable miss against expectations of $221 million.

Evolution posted a statutory net profit of $163.5 million for the year, down 49% from the prior corresponding period, on the back of several external events including mine closures at its cornerstone Ernest Henry operation.

The board declared a fully franked final dividend of 2 cents a share (30 June 2022: 3 cents a share – the 21st consecutive dividend paid to shareholders since 2013.

Following the FY23 results, JPMorgan analyst Al Harvey upgraded Evolution to NEUTRAL from Underweight and lifted his PT to $3.10 from $3.

CLSA analyst Trent Allen on 18 August upgraded the company to UNDERPERFORM from Sell, increasing his PT to $3.50 from $3.05.

On the same day, Ord Minnett upgraded the stock to HOLD from Lighten, analyst Paul Kaner raising his PT to $3.25 from $3.15.

Evolution’s share price closed at $3.47 on Friday 25 August. We spoke to Evolution’s Executive Chair Jake Klein recently and you can catch that interview here.

Iress (ASX: IRE)

The financial services technology company on Monday 21 August posted first-half 2023 earnings that definitively missed analyst expectations, with management downgrading guidance and suspending its dividend.

The result prompted a more than 35% dive in Iress’s share price on the day, closing at $6.44 on Monday 21 August down from just under $10 on Friday 18 August.

The response from analysts since this point has been mixed.

JPMorgan’s Bob Chen expressed concern with the lack of near-term visibility on revenue and input cost, downgrading Iress to NEUTRAL from Overweight and cutting his PT to $7 from $11.

Macquarie analyst Brendan Carrig maintained his rating of NEUTRAL, while noting the latest announcement was the fourth materials earnings downgrade in around 12 months, lowering his PT to $6.85 from $10.10.

Morgans maintained its OVERWEIGHT rating, with analyst Nick McGarrigle seeing value in the core business and acknowledging management’s ongoing efforts to unlock further value. He also noted that a shift to cloud operations should assist in reducing costs over time, but lowered his PT to $11.50 from $13.50.

Iress shares closed at $6.78 on Friday 25 August.

Westpac Banking Corporation (ASX: WBC)

Australia’s first established bank, and our third-largest financial institution by market cap, delivered its third quarter FY23 update last Monday. This echoed many of the same points raised by its peers: net interest margins pressured by rising competition but loan quality holding up better than expected alongside high capital levels.

But Westpac’s elevated cost growth is where Westpac’s update differed from those of the other big banks. Costs grew 5% quarter-on-quarter, versus analysts who tipped these would remain flat.

Westpac CEO Peter King attributed much of this rise in costs to inflationary pressures including “higher supplier costs, wages and salaries, and investment in the group’s technology and customer simplification agenda”.

On 21 August, CLSA upgraded Westpac to OUTPERFORM from Underperform, analyst Ed Henning lifting his PT to $22.40 from $22.20.

Prior to the quarterly figures, Goldman Sachs on 28 June upgraded the bank to BUY from Neutral, with analyst Andrew Lyons setting a PT of $27.38 up from $26.

On 23 May, Morgan Stanley downgraded WBC to EQUAL-WEIGHT from Overweight, with Richard Wiles trimming his PT to $21 from $22.80.

Westpac shares closed at $21.32 on Friday 25 August.

This article was initially featured on Marketindex.com.au on Friday 25 August 2023.