There are many good stocks on the TSX that you can invest in, but the key is knowing when to pull the trigger. While you don’t necessarily want to identify a stock you want to buy and sit and wait for it to drop in value (which may not happen), you also don’t want to ignore opportunities that come up.
Often this involves looking at a stock’s recent price movement and how close it is to its 52-week low, if it’s seen a lot of selling recently, or if there’s an indicator that suggests it might be due for a recovery. And although I’m not a big fan of technical analysis, there’s one indicator that I believe possesses a lot of value when it comes to price movement, and that’s the Relative Strength Index (RSI).
The RSI looks at recent price movements and helps quantify the degree of losses that a stock has incurred recently relative to its gains; the more lopsided it is, the more extreme the number is as well. When the RSI falls below 30, that indicates there’s been an excess of selling and that we may see a turnaround, particularly if there hasn’t been a discernible reason for the drop in price.
Below I’ll look at two stocks that have recently fallen below an RSI of 30 that could be great buys today.
Just Energy Group Inc. (TSX:JE)(NYSE:JE) has fallen well into oversold territory, and as of the end of Thursday it hit an RSI level of just 16. The stock has been below an RSI of 30 for a couple of weeks now, and pinpointing when a recovery might happen is proving to be a bit difficult, especially since Just Energy has been here before.
In May, the stock was previously oversold and while it did see a slight bump up, it went over a big cliff when it reported its quarterly results earlier this month as investors were scared off by its performance when the company reported a net loss. And while a sell-off may have been justified, the low RSI level suggests it has reached extreme levels.
It has gotten so bad that the company felt it was necessary to do some damage control. On Thursday, the company released an update to reassure investors that the wheels hadn’t come off, which may have been suggested by the recent price movement.
The drop in price has pushed the stock’s already high dividend yield up to a whopping 13%.
Premium Brands Holdings Corp. (TSX:PBH) has also dipped into oversold territory at an RSI of just under 30, but it’s nowhere near the sell-off that Just Energy has seen. The stock has declined by more than 15% in the past three months as it too saw a bit of a sell-off ensue after its quarterly results, although it was already on a downward trajectory leading up to the earnings release.
Premium Brands didn’t have an awful quarter as Just Energy did, but it also appears to be in a good position to rebound from this downtrend. Its dividend currently pays investors a yield of just under 2%.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor David Jagielski has no position in any of the stocks mentioned.