We recently compiled a list of 10 Worst Performing Stocks to Buy on the Dip. In this article, we will look at where Sasol Limited (NYSE:SSL) ranks among the worst performing stocks to buy on the dip.
Capital markets demonstrated increased volatility starting in August 2024 and continuing in September 2024. That being said, strong rallies followed numerous negative performance days. Therefore, these movements have helped keep the stocks moving in an overall positive direction. Market experts believe this is a great time to invest in equities. For those having money in cash, the current juncture provides an opportunity to put capital to work in the longer-term assets.
Wall Street experts believe that the markets are concerned about the signs of economic softness. The experts continue to assess how quickly the US Fed will respond to it through the adjustments in the interest rate policy. With the US Fed starting to cut the key policy rates, global money managers continue to figure out whether it is too late, or will the actions support the broader economy and continued corporate earnings growth. The economic environment has now been changed, with inflation falling and the job market appearing to be modestly weaker. The market experts believe that equity market leadership saw a drastic shift, with tech stocks seeing a modest, third-quarter retreat after leading the market’s surge since late 2022.
Q3 Market Rotation and Market Drivers Moving Forward
As per the US Bank, a subsidiary of the U.S. Bancorp, there was a major Q3 shift that took place in the S&P 500. The bank highlighted that the once-dominant technology sectors (IT and communication services), which outpaced other sectors in 2023 and in H1 2024, gave up some gains. As a result of an easing interest rate environment, the investors decided to shift their focus. The US Bank went on to highlight that the biggest Q3 beneficiaries were real estate and utility stocks.
Moving forward, inflation, labor market trends, business spending patterns, corporate earnings, and stock valuations are likely to dominate the broader US equity market. The US Bank mentioned that Q2 2024 earnings saw an increase of over 10% as compared to Q2 2023 earnings. Despite the challenges related to a slowing economy, the earnings expectations have not been changed. Notably, the markets continue to expect continued earnings growth through the remainder of 2024 and 2025. As per the earnings insight report by FactSet (dated September 20, 2024), for Q3 2024, the estimated (YoY) earnings growth rate for the S&P 500 stood at 4.6%. While analysts are expecting YoY earnings growth of 10.0% for CY 2024, they expect ~15.2% for CY 2025.
Amidst Volatility, Markets Will Experience Swift Recovery
The initial seven months of 2024 saw the broader market move forward, with only modest interruption or volatility. After a tough August start, the stocks recovered quickly, and the broader markets again ended the month in positive territory, only to start September on a volatile note. Most of the volatility stemmed from the expectations of a series of Fed rate cuts. This can be considered as the big driver for the broader market, mainly when the economic focus pivots to labor market conditions instead of inflation threats.
Amidst the broad-based volatility, market experts opine that large stocks were able to retain their advantage.
In July, there was an outperformance by the small stocks as the Russell 2000 Small-Cap Index gained over ~10%, compared to a ~1% gain for the large-cap S&P 500. This was mainly because of the prospects of Fed rate cuts, which led to the short-term shift into smaller stocks. However, the rotation to smaller-cap stocks was again sidetracked in August, with the S&P 500 again outperforming mid-cap and small-cap stocks. Over the past month, the Russell 2000 Index saw an increase of ~0.3%, while the S&P 500 Index went up by over ~2%. This demonstrates that, amidst volatility and macro-level changes, well-established stocks should be favored as they provide reasonably good entry points.
Our methodology
To list the 10 Worst Performing Stocks to Buy on the Dip, we used a Finviz screener and online rankings to filter out the stocks that have fallen significantly on a YTD basis. Finally, we ranked the stocks according to their potential upside, as of September 27. We have also included the number of hedge fund holders for each stock, as of Q2 2024, which we sourced from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Sasol Limited (NYSE:SSL)
Average Upside Potential: 67.63%
% Fall on a YTD Basis: ~32%
Number of Hedge Fund Holdings: 11
Sasol Limited (NYSE:SSL) operates as a chemical and energy company in South Africa and internationally.
Sasol Limited (NYSE:SSL)’s stock witnessed a significant decline in the recent past as a result of a challenging macro environment, stemming from lower oil prices and weaker demand. These measures have impacted its cash generation and profitability. The downstream units in the Chems Americas segment have been witnessing demand below expectations. Also, the gas depletion in Southern Africa continues to pose a supply challenge for Sasol Limited (NYSE:SSL). The company’s stock was pressured because of logistic challenges, which impacted the Synfuels product mix.
On the other hand, market experts and Wall Street believe that Sasol Limited (NYSE:SSL)’s stock is well-positioned for a revival as a result of increased production and sales volumes. While the focus is on operational efficiency, cost and capital management, and portfolio optimization, Sasol Limited (NYSE:SSL) highlighted that its initiatives to improve mining productivity, operational stability, and asset utilization remain in place.
The company achieved ZAR16 billion in EBITDA enhancements from the Sasol 2.0 transformation program and continues to target an additional ZAR2-4 billion in FY 2025. Sasol Limited (NYSE:SSL) continues to explore renewable energy projects and LNG supply options. Over the medium term, the company has kept its focus on maintaining performance while scaling transformation opportunities. Its stock price growth should be aided by its long-term goals, which include optimizing and transforming the portfolio with a clear focus on sustainability.
As per Insider Monkey’s Q2 2024 data of 912 hedge funds, 11 hedge funds reported owning stakes in Sasol Limited (NYSE:SSL).
Overall SSL ranks 2nd on our list of the worst performing stocks to buy on the dip. While we acknowledge the potential of SSL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SSL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.