While the stop-and-start market of 2023 has not been favorable to many companies, there is a silver lining. Some stocks that have hit record highs this year have experienced significant drops, making them potentially attractive investments.
Evercore, an investment bank, has identified a selection of stocks that meet their criteria for potential bets. To be included in their list, a stock must be down between 10% and 25% from its high. However, a significant drop in stock price alone is not enough. The consensus Wall Street forecast for calendar 2023 earnings per share must also show a greater increase since the end of June compared to the projected growth for the entire S&P 500.
Among the stocks that meet these requirements are well-known names like McDonald’s, Apple, Yum! Brands, PulteGroup, Illinois Tools Works, Eaton, and On Semiconductor. On Semiconductor, a chip maker with a market value of $41 billion, stands out as one of the qualified stocks. It is currently down about 13% from its record high reached in early August. Analysts predict an 8.2% increase in full-year EPS since the end of June, compared to just over 1% for the S&P 500.
Wall Street remains optimistic about these beaten-down stocks, despite their recent declines. The belief is that the strong sales growth witnessed in recent years will persist. According to FactSet, sales are projected to grow by approximately 11% annually, reaching around $11.7 billion by 2026.
On Semi: Capitalizing on the Electric-Vehicle Boom
On Semi finds itself in a fortunate position as it taps into the fast-growing electric-vehicle market. With the automotive industry increasingly reliant on software-driven cars, the demand for chips is soaring. On Semi offers highly valuable chips with superior margins, ensuring a promising future for the company.
Projected Earnings Growth
Considering the impact of stock buybacks, On Semi expects a substantial annual increase of approximately 17% in earnings per share. Analysts at FactSet anticipate earnings reaching around $8.48 by 2026.
PepsiCo: Facing Recent Setbacks
PepsiCo, while a major player in the snack-and-beverage industry, has encountered a downturn lately. Stock prices have dropped by around 17% since hitting a record high in mid-May. Investor confidence in the economy's outlook has grown, leading to a shift towards growth-sensitive investments. Additionally, concerns regarding the impact of weight-loss drugs on snack consumption have also contributed to the decline.
Rising EPS Forecast for PepsiCo
Despite recent setbacks, the consensus forecast for PepsiCo's full-year earnings per share has risen by approximately 2.3% since June's end. The company has outperformed expectations with third-quarter sales and EPS exceeding projections.
Sustained Growth for PepsiCo
PepsiCo continues to demonstrate remarkable growth, even amidst challenging circumstances. The company generated approximately $23.5 billion in sales during the quarter, marking an impressive 7% increase compared to the previous year. Despite higher costs, profit margins were boosted by rising prices. Year-on-year, EPS increased by 14%, reaching $2.25.
Opportunity for Investors
The overall message is clear: both On Semi and PepsiCo have potential for success, despite their recent struggles in the market. Currently undervalued, their stocks offer an attractive opportunity for investors.