Death cross stocks – on the surface, the title sounds incredibly menacing. However, it may be one of the more misunderstood concepts. By the end of this short introduction, you’ll view this indicator in a more nuanced manner.
Simply put, the death cross signal flashes when a shorter-term moving average (typically the 50-day moving average) slips below the longer-term average (usually the 200 DMA). What it indicates is that more recent price action has been volatile compared to the longer-running dynamic. Some might reasonably assume that this is a signal to avoid the impacted equities. However, they could also be contrarian stocks.
Established publicly traded enterprises tend to follow an ebb and flow; that is, they cycle through periods of undervaluation and overvaluation. The death cross is really saying that the pricing is below historical averages (relatively undervalued). So long as the fundamentals are robust, these death cross stocks should be contrarian upside opportunities.
CoreCivic (CXW)
I’m going to be upfront: I didn’t like private-prison operator CoreCivic (NYSE:CXW) following the disastrous Republican response to this year’s State of the Union address. President Joe Biden – while flubbing a few lines – seemed, well, presidential. That aura quickly faded though, when, Biden suffered what may be a catastrophic first debate. To reference the memes, it certainly seems like it’s “Joe-ver.”
The market didn’t respond well to CXW stock last month, sending it into the weeds. Following the debate, sentiment started to pick up significantly. However, in the technical charts, CoreCivic is about to incur the “dreaded” death cross. Fundamentally, I would view this as a contrarian indicator. Again, sentiment has picked up.
In addition, the Republicans have an easy road to the White House. One of former President Donald Trump’s key agendas is immigration: no more undocumented workers. The harsh crackdown that is about to happen may bode well for CoreCivic’s business. It’s an ugly thing to say, I get it. However, it’s the reality. Thus, CXW ranks among the death cross stocks to consider.
Medtronic (MDT)
One of the top medical device firms, Medtronic (NYSE:MDT) specializes in a wide range of advanced solutions, from implantable cardiac pacemakers to insulin pumps for the purposes of diabetes management. While relevant, that alone won’t guarantee anything on the Street. MDT finds itself down about 6% year-to-date and 10% down in the past 52 weeks. Technically, it’s one of the death cross stocks.
However, speculators may want to give Medtronic a second look. In terms of the financials, it’s doing alright. In the past four quarters, the company posted an average earnings per share of $1.30. During the period, analysts anticipated an average EPS of $1.25. The performance yielded an earnings surprise of 4.48%.
Attractively, MDT stock now trades at 3.21X trailing-year sales. Between the first quarters of 2023 and 2024, this metric stood at 3.53X. Also, MDT trades at 14.37X forward earnings. In contrast, the prior year’s average stood at 15.82X.
Experts see modest growth in both earnings and sales for the current fiscal year and the next. Thus, MDT is one of the contrarian stocks to consider.
Block (SQ)
Financial technology (fintech) giant Block (NYSE:SQ) needs no introduction. Formerly known as Square, Block primarily serves small businesses with its payment processing equipment and systems. This facilitation enabled small companies to compete more effectively with their larger peers. However, pressures against the consumer economy have negatively impacted SQ. So, it’s just on the verge of becoming one of the death cross stocks.
However, SQ stock has rocketed higher in recent sessions. So, it might be possible for Block to escape the label. Either way, Block seems like an opportunity since it’s still trading at a heavy discount relative to levels seen in 2021. With another Trump administration possibly imminent, this raises questions about broader business viability. Still, conservative leadership could be good for cryptocurrencies, one of Block’s product offerings.
Also, consider that the market prices Block at only 21.69X forward earnings. In the prior year, Wall Street accepted a valuation of 30.47X. So, SQ has room to grow. That’s enticing because analysts see expansion of the bottom line to $3.48 EPS, a near doubling from last year. Also, sales could see a 15% boost to $25.21 billion. So, we could be looking at one of the contrarian stocks.
Hormel (HRL)
Let’s get into some of the riskier (but potentially more rewarding) ideas among death cross stocks, starting with Hormel (NYSE:HRL). As a food processing company, you’d expect Hormel to perform well. During periods of inflation and high borrowing costs, consumers may look to save money. That means more of the consumer budget may go toward the grocery aisle (as opposed to fancy restaurants).
Unfortunately, that narrative hasn’t exactly panned out well for HRL stock. Since the beginning of January, HRL is down more than 4%. In the past 52 weeks, it’s off the pace by over 20%. Even in the past five years, HRL has gone nowhere except down, losing 24%. Still, it’s possible that the bulls may have drawn a line in the sand back in February.
Technically, that may have been the bottom. Whatever the case, the market prices HRL stock at only 1.43X trailing-year sales. In the prior year, this metric landed at 1.62X. Also, its forward price-earnings (PE) ratio is 18.45X, lower than the prior year’s average of 21.39X.
Over the next two years, analysts call for slow but steady expansion in the top and bottom lines. Thus, keep it on your radar of contrarian stocks.
Iovance Biotherapeutics (IOVA)
A commercial-stage biotechnology firm, Iovance Biotherapeutics (NASDAQ:IOVA) develops and commercializes cell therapies for the treatment of metastatic melanoma and other solid tumor cancers. On the surface, Iovance appears incredibly relevant. As stated earlier, though, relevance alone offers no guarantees of market success. Due to losses extending back to early 2021, IOVA is about to become one of the death cross stocks.
That might not be as bad as it may sound to those unfamiliar with the indicator’s nuances. For one thing, IOVA stock has enjoyed some strong sessions recently. Also, as InvestorPlace contributor Joel Lim mentioned, Iovance features two drugs in the market and additional compelling therapeutic candidates in clinical trials. I wouldn’t sleep on this idea.
Another consideration is analysts’ expectations. For fiscal 2024, they’re targeting a loss per share of $1.38, which is a significant improvement from last year’s $1.89 in the red. In the following year, Iovance could whittle the loss down to 73 cents per share.
However, the big catalyst could be revenue of $153.92 million in 2024, which is a gargantuan leap from last year’s $1.19 million. So, keep IOVA on your list of contrarian stocks.
Kura Sushi USA (KRUS)
Niche restaurant Kura Sushi USA (NASDAQ:KRUS) is an enticing idea if you like to speculate. First, Americans really love their sushi but there’s a problem. It takes time to prepare – well, at least the good ones do. So, waiting for your sushi and other entrees is a hassle. Enter Kura. Basically, your sushi and other food items are rolling along a conveyer belt. You pick what you want.
Of course, you can special order certain items and these can be whisked directly to your table. The beauty of Kura’s business model is that people can start eating right away while they wait for their favorites. That might actually save time for the restaurant operators: people get fuller quickly and leave the table. And that opens up a table for the next guest(s).
However, Wall Street hates KRUS stock, sending it down more than 21%. Maybe prospective investors are getting KRUS mixed up with Kura Oncology (NASDAQ:KURA). Stranger things have happened. Whatever the case, Kura the restaurant trades for 2.61X sales. In the prior year, this metric clocked in at 4.7X.
Analysts are looking for fiscal 2024 sales to hit $236.89 million. That’s up 26.4%, making KRUS one of the contrarian stocks to consider.
TAL Education (TAL)
You’ve come this far for compelling death cross stocks so let’s end on a good one with TAL Education (NYSE:TAL). Falling under the education and training services industry, TAL is incredibly relevant. It offers K-12 afterschool tutoring services, leveraging the latest technologies and tools, such as artificial intelligence and mobile apps. However, it’s based in China and that’s where things get squirrely.
Because many questions hang over the health of the Chinese economy – particularly with its consumer ecosystem – the concept of an afterschool tutoring service may seem superfluous; that is, households may be tempted to axe it from the budget. TAL stock is down more than 15% YTD, providing some weight to the concerns.
Fundamentally, though, the Chinese culture values education. Further, China is locked in a geopolitical competition with the U.S. and major western powers. Education is the way for the next generation to get ahead and that ultimately makes TAL stock a viable investment.
Analysts agree and this is why I’m excited about the idea: they view TAL as a unanimous strong buy. Also, their average price target of $17.78 implies almost 78% upside potential. It doesn’t get much better than that.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.