3 Oversold Stocks to Buy Before They Bounce Back

These oversold stocks offer a huge return for investors willing to buy now and hold on tight and gain a slight dividend in the meantime.

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The Relative Strength Index (RSI) can be an incredibly useful tool for investors. The RSI helps to see whether a stock has become overbought, or ideally oversold. In the latter case, oversold stocks can be a sign that they are below value. Therefore, they could see a big bounce back in the future.

Today, we’re going to look at three oversold stocks that have an RSI under 30. This puts them in oversold territory, leading investors to potentially jump on these stocks in the near future.

First Quantum

First Quantum Minerals (TSX:FM) has been sinking lower and lower in share price. It currently has an RSI of 18.05, with shares down 65%. It now trades at just 9.21 times earnings as well, with a 1.91% dividend yield. So, let’s look at why First Quantum stock is down these days.

First Quantum stock saw its future price reduced after a shutdown of Cobre Panama. This would remove production for the company during the first half of 2024. Now, there is a fair bit of risk for the stock, as it’s unclear what the future holds and what a Presidential Election might bring.

In fact, some analysts believe a potential merger could be on the books with their balance sheet in focus. For now, cost reductions will be a clear focus. Even still, the company said it would be increasing its production in its Zambia copper project to help things along, and analysts give it a “sector perform” rather than “underperform.” Shares could certainly increase in the near future.

Franco-Nevada

Usually, Franco-Nevada (TSX:FNV) is a strong stock that many investors consider. But right now, FNV stock is one of the oversold stocks to consider. The company holds an RSI of 24.36 as of writing, trading at 30.35 times earnings and with a 1.28% dividend yield. So, what’s been going on here?

The Cobre Panama mine was also a problem for FNV stock. That’s because the pair have a streaming contract agreement and work on the mine together. So, when the “continued illegal blockades” at its port caused the mine to remove production, FNV stock also fell.

However, as with First Quantum, the company looks like it will still manage to do just fine in the near future. That’s why investors have overreacted. While there have been slight cuts to future share prices, overall its guidance for 2023 precious metals will remain unchanged. It looks like, in this case, First Quantum will be harder hit.

BRP

In unrelated mining news, BRP (TSX:DOO) also saw shares drop recently, now holding an RSI of 28.99. That’s honestly pretty close to fair value already, which shows that the stock is likely to climb back up again in the near future. Meanwhile, it trades at just 7.29 times earnings, with a 0.90% dividend yield.

BRP shares fell after the Sea-Doo maker saw a huge drop in sales in its third quarter. Higher inflation and interest rates have put a hold on consumer spending, leading to far fewer recreational vehicles being sold.

The quarter saw sales fall by 8.9%, with softening demand both in Canada and in international markets, the chief executive officer said. However, many analysts believe the shares were oversold, putting forward the argument that it now offers far less inventory risk and that overall earnings were still solid considering everything. So, while future prices have been cut, it’s a great deal today.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Brp. The Motley Fool has a disclosure policy.

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