7 Stocks That Are Long Overdue for a Relief Rally

Investing is a tug-of-war between bullish and bearish sentiment. Near-term price swings provide long-term investors with great entry points to pick up unfairly beaten-down stocks. Accordingly, astute investors will spend more time focusing on stocks that have traded at undervalued levels for longer than they should. Investors shopping for sold-off stocks overdue for a relief rally may get rewarded with a little patience.

There are plenty of stocks poised for a relief rally, which can take various forms due to a wide range of catalysts. Oversold conditions, over time, will attract bargain hunters. However, long-term, sustainable rallies can be driven by positive business catalysts. Analyst upgrades are one such positive driver which can trigger a relief rally.

Of course, investors cannot rely solely on stock price movements or bullish ratings from analysts to bet on a rebound. Both are not necessarily predictive of future performance. Instead, investors who research why a stock is discounted are most likely to be rewarded.

These seven stocks have a value score from Stockrover screener, in the range of 72 to 93 out of 100. Thus, they are among the top stocks I think can rally hard from here.

BorgWarner (BWA)

BorgWarner (NYSE:BWA) supplies automotive parts. Partly due to its relatively simple and unattractive business model, this is also a company that’s among the cheapest stocks to buy of its peers, with a forward price-to-earnings ratio of 9-times.

Notably, BWA stock dipped after posting Q1/2023 revenue of $4.18 billion. However, its 2023 eProduct sales outlook increase suggests it is due for a relief rally.

BorgWarner expects its 2023 electric vehicle sales to grow from $1.5 billion to $1.8 billion. This is more than double its 2022 sales. Another notable catalyst comes out of China, where Chinese automakers are moving quickly toward hybrid transmissions and range-extended EVs. It’s expected that mass production of the eMotors will start in August 2023. Thus, revenue from BorgWarner’s battery pack business is likely to expand over time. A large global customer has begun using its battery packs for electric buses. Customers trust BorgWarner for its battery safety. This includes current overcharge protection, electrical disconnects, and cell-level passive propagation resistance.

The company has accelerating demand, and is expanding its capacity. For example, BorgWarner announced plans to expand its production facility in South Carolina. This increases its battery module production at the facility. As a result, its annual battery module capacity is now around 3-gigawatt hours.

CF Industries (CF)

CF Industries (NYSE:CF) shares peaked at the $100 level between Sep. 2022 and Dec. 2022. Since then, this stock has been on the decline, as the global manufacturer of hydrogen and nitrogen posted revenue falling by 30.0% year-over-year to $2.01 billion this past quarter.

Investors have been avoiding CF stock for many reasons. One such reason is the unpredictability of the agricultural fertilizer market. Various headwinds that began in 2022 and have continued into this year remain. Ultimately, CF Industries is a price taker, so the prices of these raw commodities matter a great deal to its bottom line.

That said, despite price volatility, CF’s Q1/2023 results are encouraging. The firm executed a memorandum of understanding with LOTTE CHEMICAL Corporation. LOTTE, South Korea’s leading chemical company, will receive clean ammonia supply.

The company is optimistic about growth outside of its traditional fertilizer channels. Demand is likely to continue to remain robust, with CF expecting robust growth through the 2027-2028 timeframe. Overall, CF is well-positioned for growing global demand over the next decade. The company’s recent acquisition of Waggaman Ammonia production facilities from Incitec Pivot Ltd. for $1.675 billion builds the company’s capacity to meet said demand growth.

JD.com (JD)

JD.com (NASDAQ:JD) is a China-based e-commerce retailer. JD stock’s most recent peak was at over $60 in January of this year, but has been volatile of late. That’s partly due to the company’s modest revenue growth of 1.4% in Q1 2023, which was too low to impress investors.

Outgoing Chief Executive Officer Lei Xu said that JD strengthened profits by streamlining its operations, expanding its service offerings, and optimizing its product portfolio. However, the CEO will resign due to personal reasons. Chief Financial Officer Sandy Xu will become CEO for the third time. A major restructuring is the underlying message of the company’s management reshuffle.

On the conference call, CEO Xu said that the firm has already restructured JD Retail and JD Logistics. It will further split into more operational units, such that it may focus on specific product categories. JD needs its management to work closer with its business units to respond faster to changing market conditions.

After re-opening following three years of Covid lockdowns, China has yet to recover economically. Western firms are exiting China, as part of their plans to diversify their manufacturing reliance to other countries. With fewer jobs in China, JD needs to maintain the loyalty of its customer base. If it can do that, it’s a buy here.

Leidos Holdings (LDOS)

Leidos Holdings (NYSE:LDOS) is a science and technology leader. The company posted revenue growth of 6% year-over-year to $3.7 billion. Currently, LDOS stock is relatively inexpensive at a forward price-earnings ratio of around 11-times.

Looking ahead, investors are clearly nervous that the U.S. debt ceiling will delay President Bien’s $6.9 trillion budget request for the 2024 year. The budget is critical to Leidos realizing revenue from the defense, transportation, NASA, energy, and Veterans Affairs sectors of the government.

In Q1, Leidos was focused on navigating supply chain challenges. CFO Chris Cage said that sourcing from China hit the company’s quarterly results. However, as activity levels improved, Leidos could not supply some of the components the market demanded. Thus, the company posted a net book-to-bill ratio of 0.8 times. These bookings are expected increase to 1.0 times in the long-term, once big programs reward contracts with Leidos.

Out of the backlog of $35.1 billion, $8.3 billion is funded. Thus, when the debt ceiling fiasco is resolved, I think this stock is poised for a nice rally.

Organon (OGN)

Organon (NYSE:OGN) is a spinoff between Merck (NYSE:MRK) and its acquisition of Scherling-Plough in 2009. Investors are dumping the stock after the drug company posted earnings per share falling nearly 35% to $1.08. Additionally, the company’s revenue of $1.538 billion fell by 1.9% on a year-over-year basis.

I think the recent drop in OGN stock following these results is unwarranted. That’s because investors largely failed to recognize the key driver of the earnings per share drop was related to acquisitions and debt repayment. Organon paid back $250 million in debt, and acquisitions in the quarter included marketing rights for Nexplanon, Marvelon, and Mercilon, which should be accretive to future earnings.

Additionally, there are some positive catalysts to focus on. The company saw revenue growth of 20% from its biosimilars business. Additionally, Organon is focusing on an upcoming launch of Hadlima, which treats moderate to severe active rheumatoid arthritis. While Hadmila adds no more than 1.5% to the firm’s 2023 revenue, this number should increase significantly in future years. Organon is waiting for two or three Hadlima formularies, but by 2024 and 2025, the company will have a clearer view of the market for Humira biosimilars.

Once Organon updates its outlook, I think there’s a good likelihood this stock rebounds nicely. Currently, OGN is among the cheapest biotech stocks to buy.

Qualcomm (QCOM)

Qualcomm (NASDAQ:QCOM) peaked at $140 this year, but has since fallen into bargain territory after posting a downbeat outlook. Sluggish smartphone sales are weighing on QCOM stock.

The smartphone chip supplier posted revenue of $9.27 billion in its fiscal Q2, which was down by 16.9%. Technology investors typically avoid companies that are not growing, instead discounting a given company’s stock price to account for the slowdown ahead. Qualcomm is forecasting revenue of $8.1 billion to $8.9 billion, well below the consensus of $9.12 billion.

The company needs to draw down its excess inventory. Macro headwinds are increasing, hurting demand. Although it has design wins such as digital cockpit and auto connectivity solutions in automotive, those are small revenue drivers compared to sales from smartphone chips.

That said, investors may want to consider adding Qualcomm stock, which has been discounted due to the risk of delays in the inventory drawdown of 300 million units. That’s because while the recovery time for the Chinese economy is unknown, over the long-term, these issues will be ironed out. This is a blue-chip stock worth buying the dip on at these levels.

Viatris (VTRS)

Viatris (NASDAQ:VTRS) is a pharmaceutical firm, formed through the merger of Mylan and Upjohn. Despite Viatris reaffirming its outlook for 2024, shares are languishing. Additionally, it expects its revenue, adjusted EBITDA, and free cash flow to be at the midpoint of its 2023 guidance ranges.

The company’s free cash flow forecast should allow Viatris the ability to pay down its debt, buy back shares, and invest in its business. The market is discounting Viatris because of the high-interest rate environment, which increases the cost of managing debt. Investors cannot count on the Federal Reserve to slash interest rates. However, such a move would immediately improve the company’s financial position.

The latest results of Multiple Sclerosis from Viaris and Mapi Pharma are a potential catalyst for the company. The firms recently released the presentation of their latest clinical findings. The results were impressive, with injections reducing the contrast-enhanced lesions by 28%. Once Viatris has the molecule on the market, its market share for GA Depot (40 mg) will grow.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.