In this article, we will take a look at the 10 best rebound stocks to buy now. If you want to see some more of the stocks, go to 5 Best Rebound Stocks To Buy Now.
Since the start of 2022, the S&P 500 Index has lost 19% of its value and saw a dip of as much as 25% in mid-October this year, reflecting a re-entry into the bear market that was last seen in mid-June 2022. Experts anticipate the broader market to rebound when three factors are aligned. These factors include justifiable valuations of companies, an economy in a steady phase, and a stable benchmark interest rate environment. Experts believe that the valuation of stocks has started to become reasonable. This can be gauged by the fact that at its bottom in mid-October, the forward P/E multiple of the S&P 500 Index fell to 16.9x as compared to 24.5x at the start of the year. This reflects a contraction in the P/E multiple by over 31%. According to data compiled by FactSet, the weighted cumulative earnings of the S&P 500 Index are expected to be reported at $238.23 per share in 2023. This would reflect an increase of 8% from the 2022 forecasted EPS of $220.63. Analysts believe that the 2023 S&P 500 Index EPS forecast needs to be revised down by 12% to $210 to reflect the true earnings potential of the market.
The economy is expected to enter into a steady phase soon as inflation has shown the first sign of cooling off. The YoY increase in the consumer price index (CPI) for September 2022 was posted at 8.2%, which was 10 basis points (bps) lower than the increase in August 2022. However, it must be noted that inflation is still raging across numerous consumer segments. Regarding a stable benchmark interest rate environment, more clarity is required from the US Federal Reserve. The Federal Reserve has already revised benchmark interest rates five times this year, and on the last three occasions, there has been a 75 bps interest rate hike that reflects a hawkish stance by the Fed.
To benefit from the best rebound stocks, such as Microsoft Corporation (NASDAQ:MSFT), Adobe Inc. (NASDAQ:ADBE), and Amazon.com, Inc. (NASDAQ:AMZN), shrewd investors should have sufficient cash reserves to be prepared to purchase shares at lower prices for long-term gains. There is a widespread belief that once the market hits bottom, recovery can be expected in 2023 as attractive valuations, a steady economic outlook, and a stable benchmark interest rate environment will provide the impetus for the rally.
Our Methodology
Most of the best rebound stocks shortlisted in this list are growth companies with a cyclical nature of business. These companies have faced a significant dip in prices since the start of 2022 and are expected to rebound due to their high growth potential once the economic environment stabilizes. Some defensive stocks have also been included, which are expected to hold their ground during uncertain economic conditions. We have discussed the business fundamentals and analyst ratings to provide additional investment context. The stocks have been ranked using Insider Monkey’s database of 895 hedge funds as of Q2 2022.
Best Rebound Stocks To Buy Now
10. Linde plc (NYSE:LIN)
Number of Hedge Fund Holders: 48
YTD Price Change: -16.8%
Linde plc (NYSE:LIN) is a Dublin, Ireland-based industrial gas and engineering corporation.
In a research note issued on October 17, Peter Clark at Societe Generale gave Linde plc (NYSE:LIN) stock a Buy rating with a target price of $370. The target price reflects a potential upside of over 28% from the closing price as of October 31. The analyst anticipates Linde plc (NYSE:LIN) to generate consistent earnings in the future despite the uncertain economic macroeconomic environment. Linde plc (NYSE:LIN) has been able to incorporate rising energy costs into its business model by dictating higher prices. Experts believe that high-quality and defensive names like Linde plc (NYSE:LIN) would be in a strong position to rebound once the market turns bullish. Presently, Linde plc (NYSE:LIN) stock is trading at a forward P/E multiple of 23.55x as opposed to its five-year average of 27.08x, reflecting a discount of over 13%.
ClearBridge Investments shared its stance on Linde plc (NYSE:LIN) in its Q2 2022 investor letter. Here’s what the firm said:
“The replacement of demand for Russian gas with green hydrogen positions Linde (NYSE:LIN) well. Green hydrogen, made by using renewable energy to split water into its basic elements, hydrogen and oxygen, and subsequently cleanly burn the hydrogen as fuel, is seen as key to lowering emissions in hard-to-decarbonize industries such as steel and cement, as well as transport. In 2021 Linde announced a long-term agreement to provide European semiconductor maker Infineon (OTCQX:IFNNY) with onsite production and storage of green hydrogen for the company’s site in Villach, Austria. Securing a clean, domestic source of energy for semiconductor manufacturing appears strategic today amid heightened concerns of reliable supply from Taiwan.”
9. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 72
YTD Price Change: -43.1%
Tesla, Inc. (NASDAQ:TSLA) is an Austin, Texas-based electric vehicle (EV) juggernaut helmed by Elon Musk.
Although the stock price of the biggest automobile company in the world has seen a significant YTD dip, the company is actively working on becoming one of the best rebound stocks to buy. Tesla, Inc. (NASDAQ:TSLA) is slashing its prices in China to gain market share in the biggest automobile market in the world. The company announced a price cut of as much as 9% and has gone against the industry norm of price hikes. Following the cut, the price increase in China stands at 5% only as opposed to a minimum of 11% in the US market. Given all these updates, George Gianarikas at Canaccord gave Tesla, Inc. (NASDAQ:TSLA) stock a Buy rating with a target price of $304 in an update issued to investors on October 25.
Baron Funds discussed its outlook on Tesla, Inc. (NASDAQ:TSLA) in its Q2 2022 investor letter. Here’s what the firm said:
“In 2014, before we began to invest in Tesla (NASDAQ:TSLA), I called Roger to ask whether he thought Elon Musk’s electric car business would succeed. I did not believe that Roger, an owner of dealerships that sell cars powered by internal combustion engines (ICE) would likely have a favorable opinion of Tesla’s prospects. That was principally for two reasons:
- First, automobile manufacturing and distribution is unusually complicated, capital intensive, and highly regulated, which makes profitability problematic;
- second, cars with ICE motors require extensive annual maintenance, and dealer services revenues, not profits from automobile sales, are the most important contributor to profits of perpetual licensed ICE car dealerships.
Penske Automotive Group is principally an ICE car dealer. Since electric cars are powered by batteries and need little service, franchised dealerships are incented to sell ICE not EV automobiles. Further, Roger had been a long-term director of General Motors. General Motors’ ICE automobile business would be disrupted if Tesla were successful.
Regardless, I was right to have spoken with Roger. That was since he outlined numerous issues we needed to consider, study, and question before we determined whether we believed Tesla could be a successful business…before we ultimately chose whether to invest in that company.
When we completed our initial due diligence on Tesla, which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla over the next two years. I then called Roger and outlined why I thought we could earn 20 times our capital over the next 10 years. Roger was so certain I was wrong that he offered to bet me $1 million that Tesla would fail. “Roger, I can’t bet you a million dollars. First, if you are right, I couldn’t afford to pay you. Second, if I’m right, you’re my friend, and I couldn’t take your money.” We settled on a dinner bet…”
8. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 82
YTD Price Change: -23.4%
Danaher Corporation (NYSE:DHR) is a Washington, D.C-based company involved in environmental and applied solutions, diagnostics, and life sciences.
In a research note issued on October 24, Deane Dray at RBC Capital assigned Danaher Corporation (NYSE:DHR) stock an Outperform rating with a target price of $302. The analyst noted that the company reported strong Q3 2022 operating results due to the strength displayed by the broad portfolio and the upside offered by the COVID-19 testing revenues. The analyst sees the life sciences division as the growth engine of Danaher Corporation (NYSE:DHR) in the long run, which could aid the stock price in rebounding. Furthermore, Mr. Dray thinks that the valuation of Danaher Corporation (NYSE:DHR) stock is attractive and close to the low end compared to the historical multiples range. The company’s strong fundamentals merit its inclusion in our list of the best rebound stocks to buy.
In its Q3 2022 investor letter, Cooper Investors shared its bullish outlook on Danaher Corporation (NYSE:DHR). Here’s what the firm said:
“Spin-offs have been a valuable source of uncorrelated return for the portfolio since inception, whether investing in them directly or retaining ownership stakes in the spun-off assets of existing holdings. During the quarter Danaher announced the spin of its Environmental & Applied Solutions group (EAS) expected to close in late 2023. Danaher have been masters of the spin over the last decade and once again this one appears to make sense for both parties. The parent becomes a pure-play life sciences and diagnostics business with higher growth, margins and returns plus more M&A firepower. EAS, with leading positions in water quality through assets like Hach, ChemTreat and Trojan will, as a standalone business, have a more focused M&A strategy and represent an attractive water-related exposure for ESG focused funds. The spinco will still operate with the highly regarded Danaher Business System though (like ‘Fortive Business System’) we expect this to get rebranded while still delivering outstanding financial results.”
As of Q2 2022, Danaher Corporation (NYSE:DHR) was held by 82 hedge funds.
7. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 87
YTD Price Change: -60.3%
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a California-based semiconductor company that provides computing and gaming solutions through its processors, graphic processing units (GPUs), and other hardware and software.
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock price has taken a heavy beating this year due to a slowdown in demand for personal computers and the US Federal Government imposing restrictions on the exports of semiconductors to China. Experts anticipate Advanced Micro Devices, Inc. (NASDAQ:AMD) to make a rebound as it is expected to increase its market share in notebooks to 24% by the end of next year. This will aid the company in countering the impact of the slowdown in the PC market. Furthermore, experts have also highlighted that Advanced Micro Devices, Inc. (NASDAQ:AMD) has limited exposure to the artificial intelligence space in China and thus would not be deeply impacted by the ban on technological exports.
Advanced Micro Devices, Inc. (NASDAQ:AMD) was discussed in the Q2 2022 investor letter of Baron Funds. Here’s what the firm said:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global fabless semiconductor company focusing on high-performance computing technology, software, and products. AMD designs leading high-performance central and graphics processing units (known as CPUs and GPUs) and integrates them with hardware and software to build differentiated solutions for customers.
AMD has been gaining meaningful share in personal computing and server end markets over the past several years driven by the performance of its processors and technology and strong execution against its technology roadmap, and we believe share gains will continue over the coming years from a combination of AMD’s continued advancements and Intel’s stumbles in developing its leading-edge technology.
Additionally, the recently closed acquisitions of Xilinx and Pensando enhance AMD’s positioning within the data center, a key growth engine for the semiconductor industry, and Xilinx specifically opens up several new growth opportunities in new end markets like industrial, automotive, and communications. The company also generates significant cash flow, giving it capital allocation optionality for further M&A and returning capital to shareholders.”
6. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 80
YTD Price Change: -30%
The Home Depot, Inc. (NYSE:HD) is an Atlanta, Georgia-based corporation that has the distinction of being the biggest home improvement retailer in the US.
Despite losing 30% of its value since the start of the year, The Home Depot, Inc. (NYSE:HD) reported the highest quarterly revenue and earnings during Q2 2022. This was due to the higher demand for home-improvement projects in the do-it-yourself (DIY) and professional segments. The company is maintaining healthy stock levels and developing new supply chain facilities as it made a capital outlay of $750 million during Q2.
Max Rakhlenko at Cowen initiated coverage on The Home Depot, Inc. (NYSE:HD) stock with a target price of $350 and an Outperform rating on October 19. The analyst thinks that The Home Depot, Inc. (NYSE:HD) has the potential to grow its market share, enhance sales productivity and expand EBIT margins which will help the company become one of the best rebound stocks.
Diamond Hill Capital shared its stance on The Home Depot, Inc. (NYSE:HD) in its Q2 2022 investor letter. Here’s what the firm said:
“The Home Depot, Inc. (NYSE:HD) is a high-quality operator in the home improvement industry. Macroeconomic concerns, particularly the rise in mortgage rates, caused the share price to pull back and trade at a greater discount to our estimate of intrinsic value. We believe Home Depot is well positioned to continue gaining share due to its premium real estate locations, strong operations and recent investments in its supply chain. We like Home Depot’s exposure to the professional customer and believe in its ability to take market share in this segment as we believe home improvement spending has the potential to remain resilient in upcoming years.”
In addition to The Home Depot, Inc. (NYSE:HD), stocks such as Microsoft Corporation (NASDAQ:MSFT), Adobe Inc. (NASDAQ:ADBE), and Amazon.com, Inc. (NASDAQ:AMZN) are also expected to rebound swiftly once the market turns bullish.
Click to continue reading and see the 5 Best Rebound Stocks To Buy Now.
Suggested Articles:
Disclose. None. 10 Best Rebound Stocks To Buy Now is originally published on Insider Monkey.