Microsoft, Oracle, and 13 Stocks That Are Unfairly Beaten Down—and Look Like Buys

Oracle stock is down 4% over the past three months. (Justin Sullivan/Getty Images)

Key Points

• The S&P 500 is approximately 4% below its late October record high.
• Seaport Research Partners identified more than a dozen stocks, including Lockheed Martin and Oracle, that are undervalued based on Wall Street’s earnings forecasts and other factors.
• Market risks include potential overinvestment in AI by large tech companies and the Federal Reserve maintaining higher rates due to inflation being one percentage point above target.

When the entire market takes a hit, like it has this month, stocks with solid fundamentals inevitably get caught in the selloff. Finding those opportunities is a strategy to snag shares at a discount.

The S&P 500 is about 4% below its record high, hit in late October. Market participants have taken profits to account for a couple of core risks, including fears about AI spending and the Federal Reserve’s interest-rate policy.

Seaport Research Partners identified more than a dozen stocks that have been hit harder than they should have based on Wall Street’s earnings forecasts.

The analysis employed a statistical method that looked at the historical relationship between earnings expectations and stock performance to essentially single out stocks that should have performed better in the past three months, given where analysts project near-term earnings.

Therein lies the opportunity. If earnings over the coming few quarters satisfy or surpass estimates, chances are most of these stocks will rebound.

The list includes Lockheed Martin, water management products manufacturer Pentair, human resources and administrative advisor TriNet Group, sneaker maker On Holding, O’Reilly Automotive, Booking Holdings, Planet Fitness, and Pizza Hut owner Yum! Brands.

Seaport’s research also turned up a few private equity and private credit fund names that have been knocked down partly because of recent bankruptcies that stoked fear about the risks of private lending and equity investing. Those bankruptcies have been isolated and not widespread, while these private finance companies continue to grow and see strong earnings trends. They are Ares Management, Blackstone, and KKR & Co.

There are some tech companies on the list: Oracle, Adobe, software provider Workday, and Microsoft.

The risks weighing on the market don’t have to dent all stocks.

One is that large software and internet companies may have overinvested in AI. A pullback in spending from those hyperscalers building data centers would also affect chip makers and industrials. That might not happen soon, though: Big Tech firms said on third-quarter earnings reports and calls that they’ll increase the growth rate of their capital investments next year.

The second major risk is that the Fed may not cut rates as many times as the market expected because inflation remains a percentage point above the central bank’s target. Higher rates for longer could cause economic growth to slow down. That is why some non-tech stocks have faltered recently, too.

The AI concern could fade with Nvidia earnings. If you’re looking for ideas, this list could be a starting point.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com