When a stock's relative strength index (RSI) drops below 30, Wall Street starts paying attention.
Below that level, this key momentum indicator signals that selling pressure has reached extreme levels and can often mark the point where the bears start to run out of steam. For contrarian investors, in particular, these oversold conditions can represent compelling buying opportunities, especially when they occur in established large-cap names.
Right now, three well-known consumer staples giants are flashing extremely oversold signals that haven't been seen in years. While catching falling knives requires careful timing and strong stomachs, the combination of deeply oversold technical conditions and significant gaps to analyst price targets creates an interesting setup for those willing to bet on mean reversion. Let's jump in and take a look.
Molson Coors: Brutal Selloff Pushes RSI to 6-Year Low
Shares of Molson Coors Beverage Company (NYSE: TAP) have been getting hammered recently, losing more than 20% since early April and setting fresh lows in the past few days alone.
The catalyst for this selloff was disappointing earnings last month that missed analyst expectations and spooked investors. They fled for the exit, and momentum traders piled on the short side. But with the RSI now sitting at 19, its lowest level since 2018, the stock is looking extremely oversold by any measure.
What makes this setup particularly interesting is that analysts have been calling it a Buy in the weeks since the earnings miss. Needham & Company reiterated their Buy rating and gave it a $65 price target, while Roth Capital also named it a Buy but with an even more aggressive $71 target. From current levels, that's nearly 50% of targeted upside potential.
Constellation Brands: Buffett Loads Up as RSI Flashes Buy Signal
Constellation Brands Inc. (NYSE: STZ) is also setting multi-year lows as its downtrend, which started a year ago, continues to gain momentum. Shares have plunged 20% in the past month alone, sinking the RSI to extremely oversold levels at 23.
The company has been hurt by tariff concerns on its Mexican beer imports and shifting consumer sentiment that's pressured the entire alcoholic beverage sector. But here's where it gets interesting. Warren Buffett's Berkshire Hathaway has taken advantage of the selloff to add to their position and now holds more than 6% of available shares. If that's not a vote of confidence from one of the world's most successful investors, what is?
When Buffett's team sees value in a beaten-down stock, it usually pays to take notice. The combination of an RSI at 23 and the Oracle of Omaha adding shares suggests this selloff may have gone too far. For investors looking for oversold bounce candidates with growing institutional backing, Constellation Brands deserves serious consideration.
J.M. Smucker Company: Start of a Sweet Comeback?
Shares of the fruit spread giant The J.M. Smucker Company (NYSE: SJM), better known as Smuckers, have sunk 15% in little more than a week, with its RSI screaming oversold at just 29. Last week's earnings report was poor, with weaker-than-expected guidance sending investors into a selling frenzy that's been tough to watch.
But here's the thing: the stock is now trading below pretty much every analyst price target out there, including those that rate it a Hold or Neutral. Stifel Nicolaus and Bank of America rated it like this after its earnings, giving price targets of $106 and $105, respectively. Yet the stock currently sits below $96, showing just how overdone the selling has become.
Factor in that UBS Group was just one of many firms that actually rated it a Buy or equivalent while giving it a $129 price target (implying more than 30% upside), and you can see what kind of potential bounce we could soon be looking at. Investors getting involved will need to have an iron stomach and/or a long-term investment horizon, but the risk/reward profile here feels worth it.
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