A bear market ravages equities, and few have been spared. Even blue-chip stocks which boast the best balance sheets in the land have been battered. But nothing goes straight down, and oversold stocks often rebound when you least expect it. It’s a byproduct of mean reversion which pulls extended stock prices back after they get too stretched in one direction or the other. Below are three oversold blue-chip stocks to buy for July.
The process of discovering them was simple. First, I pulled open a list of the S&P 100, which includes the biggest 100 companies on the planet. These blue-chip stocks are battle-tested industry titans with a history of weathering economic downturns. Second, I sorted the companies by their Relative Strength Index (or RSI) to identify who was the most oversold. Third, I looked through the bottom quintile to nail down those with the most compelling setups.
These were the three that rose above the rest.
Blue-Chip Stocks: Chevron (CVX)
Daily Chart RSI Reading: 32
Source: The thinkorswim® platform from TD Ameritrade
The fall from grace in energy stocks has been swift. What made it all the more painful was that it came without warning. Inflation fears were fueling commodities higher. Now, recession worries are pulling them lower. They’ve gone from red-hot to ice cold in less than a month. Chevron (NYSE:CVX) shares are 25% off the highs driving the RSI reading down to 32. For comparison, the S&P 500 RSI sits at 46.
While there’s a chance the beatdown in energy persists, it’s also likely the sector has fallen too far too fast and is due for a bounce. CVX held the test of its 200-day moving average on Wednesday, suggesting bulls are fighting back. At the same time, the $140 price zone was resistance earlier this year and could turn into support. Finally, you’re locking in a market-beating 4% dividend yield at these prices.
JPMorgan Chase (JPM)
Daily Chart RSI Reading: 36
Source: The thinkorswim® platform from TD Ameritrade
Despite its blue-chip stock status, JPMorgan Chase (NYSE:JPM) has underperformed the S&P 500 and given back nearly all of its post-Covid vaccine gains. So far, shares are down 35% from last October’s peak. Rising interest rates and a recently inverted yield curve have delivered excessive damage to bank stocks, but at a certain point, an economic slowdown will get priced in.
While there may be more downside, it will ultimately prove temporary. In the short run, the RSI has descended to levels that usually priced a bounce. And historically, buying a company as well run as JPMorgan deep in bear market territory has been a great long-term bet. Even if it takes a while for the recovery to arrive, you’re collecting a respectable 3.6% dividend in the meantime.
Blue-Chip Stocks: Dow Inc (DOW)
Daily Chart RSI Reading: 25
Source: The thinkorswim® platform from TD Ameritrade
Dow Inc. (NYSE:DOW) is today’s final blue-chip stock to buy. While the rapid decline in commodity prices will ease inflationary pressures and ultimately help consumers, it certainly isn’t helping current owners of commodity-related areas like basic materials, metal and mining, and energy. That certainly includes chemical companies like Dow. Indeed, DOW stock lost approximately one-third of its value and went from up 27% for the year to down 13%.
However, signs of slowing momentum have cropped up, and prices just became as oversold as during the pandemic. In addition, there’s a lot of support at the psychologically significant $50 level. Throw it all together, and a rebound could be in store this month.
— Tyler Craig
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Source: Investor Place