The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

| More on:
Man holding magnifying glass over a document

Image source: Getty Images.

Hype in the stock market goes both ways. Sometimes, both institutional and retail investors are actively investing in certain stocks. As a result, the prices skyrocket, and the stock becomes “overbought.” In other instances, investors unload their shares in a specific company and exit the positions entirely.

When this happens en masse — i.e., a massive number of a company’s shares are dumped back into the market — the stock becomes “oversold.”

Sometimes, the rationale behind a mass exodus of investors from a company is reasonable and based on solid reasons. They get to turn in a neat profit (if they sell ahead of or at the beginning of the mass sellout) or cut their losses (if they wait for the oversold momentum to build).

But sometimes, it’s just hype working in the wrong direction. The metric used to calculate whether a stock is oversold or overbought is its Relative Strength Index (RSI).

Based on their RSI value, here are three of the most oversold TSX stocks that you may consider looking into.

A financing company

ECN Capital (TSX:ECN) stock has experienced three massive drops since the beginning of the pandemic. Once during the 2020 crash, then in Dec. 2021, and, more recently, its 55% fall in Aug. 2022. The RSI (14 days) spent most of November deep in the oversold territory (below 30). The stock is not only heavily discounted but also quite radically undervalued, with a price-to-earnings ratio of just 0.62.

The company’s financials follow nearly the same trajectory, though not with the same zeal, as indicated by the undervaluation.

And even if the stock doesn’t reach its post-pandemic peak when it recovers, it can still double your capital (almost) by reaching the comparatively modest pre-pandemic peak if you buy at the current discounted price. The company has also slashed its payouts by a significant margin from the beginning of 2022.

A tech company

Another stock that spent most of the first half of Nov 2022 in the oversold territory is Converge Technology Solutions (TSX:CTS). A discounted tech stock is not a unique sight in the current market. The sector has started to recover from its tragic fall from the 2021 peak and is now keeping pace with the TSX.

Converge Technology isn’t an exception to the rule either, though it has only started to recover in the month’s latter half, unlike the TSX Tech Index, which has been going up since Oct. 2022. The stock’s growth is backed by solid uplift in the revenue the company is bringing in every quarter.

We have yet to see how far the stock will go, but if the momentum of other tech stocks pushes it closer to an all-time high price point, you may be able to double your capital by buying now.

A healthcare company

Unlike the other two companies, Medical Facilities (TSX:DR) is still oversold, with an RSI below 30. It’s also heavily discounted — 35% down from its yearly peak. This has pushed the dividend yield up to 4%, which adds to the allure of the stock. Its recovery-fueled growth potential is decent enough.

In the last 12 months, the stock has gone through two growth cycles, going up by over 50% and 40% respectively. The valuation is moderately high, and though there is little chance that the stock will reach its all-time high (2016), if you believe there is a modest chance of the stock achieving that, you can grow your capital three-fold by investing in this company.

Foolish takeaway

The TSX bull market has started, but it might just be a temporary reprieve before the 2023 recession that most financial analysts and experts are predicting. And just like right now, when a recovery is underway, it may be a good idea to look into the most oversold stocks when the market turns again after the next fall if one is triggered by the recession.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Man considering whether to sell or buy
Bank Stocks

BNS Stock: Buy, Sell, or Hold?

Bank of Nova Scotia is up 15% from the 12-month low. Are more gains on the way?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Is Newmont Mining Stock a Good Buy Right Now?

Shares of Newmont Mining are down almost 60% from all-time highs, making the gold stock a top choice for value…

Read more »

Growth from coins
Tech Stocks

2 Canadian Growth Stocks to Buy and 1 to Sell

The recent volatility in the stock market has created all kinds of opportunities for long-term investors.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, February 21

The Federal Open Market Committee’s meeting minutes and more corporate results are likely to keep TSX stocks volatile today.

Read more »

Retirement
Investing

Got $5,000? Buy and Hold These 3 Value Stocks for Years

Given their solid underlying businesses, healthy growth prospects, and attractive valuation, I am bullish on these three value stocks.

Read more »

money cash dividends
Stocks for Beginners

Got $1,000 to Invest in Stocks? Put It in This Index Fund

This low-cost beginner-friendly ETF is a great way to invest $1,000.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

3 Cheap Tech Stocks to Buy Right Now

Given their long-term growth prospects and discounted stock prices, I am bullish on these tech stocks.

Read more »

money cash dividends
Dividend Stocks

Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Want some absurdly cheap stocks for your portfolio? Here are two options trading at a huge discount right now.

Read more »