When navigating a changing business cycle, such as today’s triggered by the Federal Reserve (the Fed) cutting interest rates, investors should focus on fundamentals and keeping a risk-to-reward profile that favors their portfolios in the coming quarters. For this reason, stocks that trade near their 52-week lows are a great place to start looking for potential value and recovery plays.
There are those who believe that stocks will trade down for a reason, and while they may be right, that isn’t always the case; otherwise, value investors like Warren Buffett would have been out of business a long time ago. Fitting the list of 52-week low stocks are names like FedEx Co. (NYSE: FDX) after a recent earnings sell-off to represent the transportation sector, coupled with another transport stock being beaten down for a while now, and Boeing Co. (NYSE: BA).
To diversify away from the transportation sector, which is highly tied to the business cycle, investors can look to the energy sector, this time at a Buffett favorite. Shares of Occidental Petroleum Co. (NYSE: OXY) are down despite the news of Buffett buying out, and that creates enough of a sentiment divergence for investors to start digging into the possibility of a pending recovery.
Why FedEx Stock Has No Reason to Stay at Its Lows Today
After the company reported a slower-than-expected quarter, FedEx stock crashed lower by as much as 17% from its previous highs. However, many market participants felt comfortable with buying the dip, as judged by the quick recovery, which brought the stock higher by 7.5% within the week.
Investors should look deeper into FedEx stock because management has realized what needs to be done to navigate the new business cycle, which is bringing lower business shipping demand as activity slows down. One gauge investors can use for FedEx’s potential activity is the manufacturing PMI index.
As the Fed just cut interest rates, the potential for the index to bottom and start to expand again is higher than the potential for it to remain at current lows. Knowing that the risk-to-reward scale is starting to tilt in favor of buyers, Wall Street analysts have remained bullish on FedEx’s future.
Those at Stephens think that FedEx stock is worth up to $350 a share, calling for a net upside of 27.2% from where the stock trades today. Even bearish traders decided to stay away from FedEx stock despite the recent sell-off, as short interest declined by 8.5% over the past month alone to signal bearish capitulation.
Buyers Are Slowly Returning to Boeing Stock at Its Lows: Is a Rebound Coming?
The average volume for Boeing stock is 8 million shares, but over the past week, this metric has risen to 18 million shares. Just like any product that attracts more activity as lower prices are taken as a discount, investors can interpret this as market sentiment voting for Boeing being on the cheaper end.
As interest rate cuts make their way through the global economy, investors can safely assume that travel demand may be on the rise, and that’s where Boeing stock comes into play. The company recently sent out a press release quoting the upcoming Chinese demand for the next decade, looking to grow at high single-digits.
China also cut interest rates by 50 basis points, creating more tailwinds for future aircraft demand and leaving Boeing with up to $515.8 billion worth of backlog orders on the back of these growing trends. Realizing that these orders will eventually turn into revenue and earnings, Wall Street analysts are reflecting this trend in earnings per share (EPS) forecasts.
Analysts think Boeing could deliver up to $1.16 in EPS next year, significantly better than today’s net loss of $2.9 per share. These tailwinds and forecasts drove price targets higher, as those at Jefferies Financial now value Boeing stock at $240 a share, or nearly 60% higher than today’s prices.
Could Buffett Buy More Occidental Petroleum to Shake Off the Bears?
Now that Occidental Petroleum stock trades at only 72% of its 52-week high, investors might expect Warren Buffett to add to his now-losing position. As the tension grows around this possibility, the stock’s short interest has declined by 2.7% in the past month and has been on a downtrend during the past quarter.
The main reason the stock is compressed today is the current oil price, which has struggled to remain above $70 consistently, significantly capping the company’s earning potential. However, this shift in sentiment is starting to spill over to Wall Street, as more analysts see double-digit upside for Occidental stock in the coming months.
Those at Mizuho and Susquehanna see a respective $72 and $78 price target on Occidental Petroleum stock, which calls for as much upside as 53.5% now that the stock trades near its 52-week low. Again, as interest rate cuts work their way through the economy, business demand could trigger a new oil cycle higher.
Other oil stocks higher in the value chain, like Chesapeake Energy Co. (NYSE: CHK), have taken off by over 20% recently on these expectations, so it is a matter of time before Occidental follows with a similar double-digit rally.
