The market closed a volatile week with yet another selloff on Friday, and has managed to push both the S&P 500 as well as the Dow Jones Industrial Average nearly into correction territory with the NASDAQ 100. Along the way, investors, analysts and experts everywhere are now asking the question about where the market is going to go from here. Days where the Dow moves 300 points or more in a single day have seemingly been the norm over the last couple of weeks, and that is something that makes the market a hard place for most investors to keep up with.
A little perspective under the circumstances can be a good thing, and while bearish sentiment and momentum has certainly been picking up, and very well could prompt the market to move even further off of its highs from the beginning of this month, the truth is that all three of the major indices remain 3% to 5% above the lows they each established during the last correct at the beginning of this year. Until the market breaks below that likely support level, and stays below it for at least a couple of consecutive sessions, it might be a good idea to temper the perception that the sky is falling.
That isn’t saying that risk right now is increasing, because it certainly is. That means that the smart thing to do right now, no matter what your preferred investing strategy may be is to sit back and wait for the next shoe to drop. There are a lot of different ways to approach the stock market, and multiple strategies that can be effective no matter what the strategy is; the trick is to recognize major shifts and changes in the trend when they happen and then to respond accordingly.
The list below is an example of what I’m referring to. The first reaction that most investors would have to see the size of the drop in price these stocks have seen is likely to be angst and fear, because nobody really knows if they’re done dropping yet, or whether what has happened this week is just the beginning of the worst to come. The irony, however is that for some of these stocks, the further their prices drop, the better their long-term opportunity is likely to be if you’re willing to wait the market out patiently and to get in low. In a few cases, this week’s drop has already made them interesting stocks that have dropped significantly below historical “fair” valuation levels.
Mohawk Industries (MHK)
Current Price: $115.03
MHK is a stock that has been declining steadily for almost the past year; after reaching a peak at around $287 in December 2017, the stock began a steady decline that has seen it lose about 60% of its value from that peak. That long, extended downward slide got even worse today, when the stock gapped lower from Thursday’s close, dropping about 20% before the market opened from above $151 to close the week at its current price. The stock is currently more than 50% below its historical Price/Book value, which suggests that the long-term upside in the stock right now could be big, with the top end at around $256 per share.
Western Digital Corporation (WDC)
Current Price: $44.19
WDC hit its all-time high at around $107 in March of this year before beginning what a lot of investors seem to think of as the stock’s death spiral. Before Friday’s close, the stock was a little above $50 per share, but after its latest earnings report disappointed investors, the stock plunged even further, testing an intraday low at around $42. The downward trend is significant, and sentiment against the stock and the semiconductor industry in generally is working hard against the stock; but the truth is that value proposition is incredibly impressive, with the stock currently trading more than 43% below its historical Price/Book level. That puts the stock’s target price at around $77 per share.
Equifax Inc. (EFX)
Current Price: $97.24
EFX’s peak came in mid-September, at around $139 per share before it began dropping, and had declined to about $123 before the week began. The more impressive part of the stock’s demise this week came on Thursday, when the stock plunged from a Wednesday close around $116 to about $107 on Thursday morning, and tested an intraday low at nearly $90 per share. Despite the drop, the discount for EFX isn’t as great as for NHK or WDC, but it is already more than 26% below the stock’s historical Price/Book ratio. That puts the stock’s target price back in the $120 range.
These are the three S&P 500 stocks that have declined more than 20% in the last week, and that are currently trading at levels that many value-based investors would consider to be compelling. Would they make a good investment right now? Maybe – dig into their fundamentals and evaluate their value proposition in details for yourself. You might find a stock that would be worth keeping track of for a strong long-term play when the market finally does begin to stabilize.