When market pain is high enough, get your shopping list out.
Here’s how I go about finding the best oversold stocks to buy.
Two weeks ago, the Big Money Index was nosediving. Small caps were under immense pain…and by most accounts still are.
In fact, the BMI is now sitting at 40% – that’s the lowest level since the pandemic lows set in March 2020. The game plan the past couple of weeks has been simple: start dipping toes if you’re courageous OR wait for our rare oversold signal to trigger.
Back then there was a chance we’d go oversold. But when selling slows, a nosedive turns into a softer landing. Think of it like a skydiver free-falling and then releasing the parachute. That’s where the data sits now.
We programmed the Big Money Index to reach oversold only when pain is immense…when correlation is 1.
In other words, when that green signal flashes it’s when no one wants to buy. Pain. Devastation. Fear. That’s the environment when a true oversold reading arrives. It’s super rare. The last one fired a day before the pandemic low.
And while we aren’t out of the woods yet for stocks, there’s reason to be happy.
Plenty of companies are trading at attractive levels. And finding the best oversold stocks to buy is fun and rewarding when you play the long game.
That’s where my mind’s been at for weeks. Today I’ll show you how I go about finding great setups.
Big Money Index Slowly Tries To Bottom Out
I don’t need to tell you there’s been a lot of stocks getting crushed. One look at the Big Money Index shows that.
Today it sits in a lower channel. It’s fallen an incredible 33 points in a month. That’s major destruction:
The BMI is heavily correlated to small caps right now. When big monster selling hits “riskier” areas of the market, all small companies feel the pain…even the good ones.
There are oversold stocks to buy. Just look at the level of selling we saw in stocks last week. Surely there are some high-quality names getting thrown out with the bath water, right? YES!
Below shows the daily buys and sells in stocks. I see opportunity when the selling eventually evaporates:
Clearly the bears have muted their roar. And if that’s the case, there’s got to be a place to find the best oversold stocks to buy!
Stay with me and I’ll show you where I find the best opportunities.
Finding The Best Oversold Stocks To Buy
Look, the Big Money ebbs and flows. Sometimes markets trend. Other times they rotate like a washing machine.
It’s frustrating when data changes. That’s why at MAPsignals our focus is much longer than days and weeks. We look for big monthly and yearly trends.
The best stocks ever ripped and dipped along their journey to the heavens. Zeroing in on high-quality stocks under pressure is our specialty.
On the 15th of each month, we create our popular MAP 50 list. These are the 50 stocks seeing the most Big Money signals in the prior 6-month period. When you look at stocks this way, longer-term patterns emerge.
Great stocks must come under pressure sometimes…it’s what supply and demand is all about. And when this list of stocks hits a speed bump, that’s when I look for oversold stocks to buy.
The MAP 50 report for December was released yesterday morning. And the message was clear, it’s time to get your shopping list ready. Below is a snapshot of the report:
In this month’s report, there are a few things that popped out to me. First, Technology makes up 38% of this list. The Big Money has been concentrated there for many months.
Next, look how the 1-month performance of last month’s report was -7.2%. The last time we had massive negative performance was in May. Back then, April’s 1-month performance for all 50 stocks was -4%. As scary as that looks on the surface, it’s really an opportunity for the courageous.
A month later that list cranked +7.5%!
Will that happen this time around? Only time will tell. But what I wager is this: There are oversold stocks to buy in this small-cap meltdown.
And third, the quality of the stocks found on this list are top notch…really top notch. Most of them are double-digit sales and earnings growers. It’s a very JUICY list!
Once the Big Money Index puts in a floor, then starts to head higher…chances are the rocket ship will have left the station. To me, not being strapped in is risky prior to liftoff.
Let’s wrap this up.
Here’s the bottom line: There are oversold stocks to buy out there. The Big Money has pounded this group hard. Waiting for an oversold signal in the BMI can only happen when all stocks fall rapidly…not just small-caps.
Near-term it’s risky to buy stocks into a correction. Long-term it’s risky to NOT buy great stocks into a correction.
Whatever you do, stay grounded and don’t let fear rule your mindset. If you’re waiting for a true oversold signal, keep following the Big Money Index. And check out this video tutorial of how to follow the BMI each day in our portal.
I’ll keep picking my spots in the meantime. Glory favors the courageous!
***Finally, check out our latest video: Best Oversold Stocks To Buy Now for December. There’s always opportunity in a sea of red.
Make sure to follow our YouTube channel here so you never miss any of our videos.
Lucas is co-founder of MAPsignals. His full bio can be found here.
Prior to MAP, he was Head of ETF Sales at Cantor Fitzgerald & SVP of Derivatives at Jefferies, LLC.
Best Oversold Stocks To Buy Now
Hello Luke
How do I differentiate between value stocks and growth stocks when they are under pressure? Or is this distinction not significant as long as they are fundamentally strong? I am a long-term investor but I don’t want to be holding the bag for too long as I got burnt with value investing in the past.
Hey Janice –
Growth and value can confuse people. When we think of growth we think of double digit sales and earnings growers. Many of them have elevated PEs like 40+. Investors give them a premium because they are growing faster than other areas of the market.
On the flipside, when we think of value we envision flat to single digit sales and earnings growth. Many times these companies are less cyclical in nature like healthcare and utilities. They can have low PEs because they aren’t expected to grow much more than they already have in the past.
Of course, these name tags can change based on new market factors like “work from home” or “reopen” as recent examples.
The key factor and question to ask when picking a great stock that’s reaching oversold is, “will they keep growing and innovating?” If you believe so, and the stock is getting unfairly punished – it can be an attractive purchase. This is why we focus on companies that make profits and are overall healthy from a fundamental standpoint.
Always keep in mind, there’s no free lunch with investing. Play the numbers game and bet on quality above all. In the end, that’s how you win the game.
Hope this helps!