Bargain Hunters: 2 Stocks That Could Become Oversold Very Soon

Shopify Inc (TSX:SHOP)(NYSE:SHOP) and this other stock have been falling and could be great buys on the dip.

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Investors looking for some deals on the markets will want to keep an eye out on the two stocks below. They’ve been struggling and are getting close to oversold territory. One indicator that helps investors know when a stock is oversold is the Relative Strength Index (RSI), which helps to gauge how excessive selling has been relative to buying and vice versa. When the RSI falls below 30, a stock is considered oversold, and the stocks below are approaching that number.

Shopify (TSX:SHOP)(NYSE:SHOP) has been falling hard over the past month. After climbing to more than $540 a share, the stock finished last week at just over $423. In a month, Shopify’s share price has fallen by around 17%. The stock is at an RSI of less than 35 and still needs to see more of a drop in price before hitting oversold status.

However, it’s still a notable decline for a stock that has been doing very well this year and that could rally from this latest setback. Unfortunately, these types of shocks to Shopify’s price haven’t been uncommon in recent years. While the business is strong and continues to generate lots of growth, Shopify has been expensive for a long time, and it’s still trading at a price-to-book ratio of 22, and earnings are still far away from being a reality.

There hasn’t been a bad news event or result that would explain this recent sell-off, and the decline could simply be investors cashing in on what’s been a great ride this year amid concerns that the stock may have gotten to be too expensive.

The company has been able to captivate investors’ excitement in the past, and it wouldn’t be surprising if the stock heats up again before the year is over. However, I’d wait out more of a decline before buying the stock.

Canopy Growth (TSX:WEED)(NYSE:CGC) is another stock that has been struggling heavily. However, unlike Shopify, Canopy Growth has been struggling for months now, losing around half of its value since May. Issues surrounding a lack of profitability and a general bearishness on cannabis stocks have been just a couple of reasons for Canopy Growth’s decline.

The stock has been in and out of oversold territory for the past few months and with an RSI of under 40, it looks like it might be headed there again. Like with Shopify, investors of Canopy Growth have been paying a big premium for the stock and a correction shouldn’t be terribly shocking. The saving grace for Canopy Growth, however, is that with edibles around the corner, we could see an opportunity for the company to benefit from the excitement surrounding that craze.

With Canopy Growth’s stock showing good support at the $30 mark, that might be a good price point to scoop up the stock. There’s still a lot of potential for Canopy Growth to recover from this, as the company is in search of a CEO, and that could help align its focus more towards profitability, which will be key in getting more investors on board.

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. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.

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