Stock Market's Monday Tumble
For the S&P 500, it was the worst day in six years. The widely followed index pulled back 4.1% on Monday, its biggest one day decline since August 2011.
This caught many investors off guard as stocks began the new year ripping higher. The Dow and S&P 500 were enjoying their best monthly gains since March 2016.
Did this lofty stock market really run up too fast? By one Kiplinger measure, this bull market is the second-longest one on record. After a stellar 2017, 2018 was also off to a fast start before Monday's trading session erased gains. However, it is important to note that Monday's drop was not caused by anything fundamental.
CNBC reported that the drop was caused more by negative sentiment and "likely some computer-programmed trading."
Therefore this pull back actually provides value investors a long awaited buying opportunity. So I decided to find which fundamentally attractive stocks in the S&P 500 dropped the furthest.
Worst Day In Six Years Offers 8 Great Buying Opportunities: Foot Locker
Foot Locker (NYSE: FL) operates as an athletic shoe and apparel retailer.
Shares of the company lost -5.2% on Monday. The stock last traded at $45.86 and ten separate valuation analyses imply that there is a huge 37.5% upside relative to its current trading price.
Source: finbox.io
It should make investors feel better that fund manager Joel Greenblatt currently backs the stock as revealed in his firm's most recent 13F filing. Greenblatt is best known for a very specific style of value investing termed: Magic Formula Investing. Foot Locker clearly has the fundamental characteristics that make it a perfect fit within his magic formula.
Worst Day In Six Years Offers 8 Great Buying Opportunities: Pfizer
Pfizer (NYSE: PFE) develops and sells healthcare products worldwide.
Shares of Pfizer fell -5.0% Monday and finbox.io's fair value estimate of $43.78 per share calculated from twelve cash flow models imply 25.9% upside. The average price target from 21 Wall Street analysts of $40.90 per share similarly imply upside.
Source: finbox.io
It's important to note that illustrious money manager David Dreman currently owns 29,210 shares of PFE. Dreman, founder and Chairman of Dreman Value Management, is best known for his contrarian value investing strategy. His published research has proven that out of favor stocks significantly outperform stocks considered to have more favorable outlooks. He obviously expects shares of Pfizer to outperform going forward.
Worst Day In Six Years Offers 8 Great Buying Opportunities: Johnson Controls
Johnson Controls (NYSE: JCI) operates as a diversified technology and multi-industrial company worldwide.
Johnson Controls's stock closed at $37.64 per share on Monday, down -4.8% from the previous trading session. Finbox.io's eleven valuation analyses suggest that shares could increase 28.3% going forward.
Source: finbox.io
Worst Day In Six Years Offers 8 Great Buying Opportunities: Chevron
Chevron (NYSE: CVX) engages in integrated energy, chemicals, and petroleum operations worldwide.
Shares of the energy company traded -5.8% lower on Monday but the stock price could end up pushing more than 18.0% higher this year based on Chevron's future cash flow projections.
Source: finbox.io
It's notable that widely respected investor Jeremy Grantham currently owns shares of Chevron worth $28.7 million. Grantham is the co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo, more commonly known as GMO. He is best known for his quarterly newsletters and for popularizing the ‘reversion to the mean’ concept in investing. He was also listed by Bloomberg Magazine as one of the 50 most influential people in global finance.
Worst Day In Six Years Offers 8 Great Buying Opportunities: HP
HP (NYSE: HPQ) provides products, technologies, software, solutions, and services to individual consumers and large enterprises worldwide.
HP's stock closed at $21.39 per share on Monday, down -4.8% from its Friday closing price. The recent drop has presented a nice buying opportunity for value investors. On a fundamental basis, the company's stock is trading at an 18.0% discount to finbox.io's intrinsic value estimate.
Source: finbox.io
Greenblatt and Grantham both hold sizable positions in HP worth $38 million as reported in their latest 13F filings.
Worst Day In Six Years Offers 8 Great Buying Opportunities: Exxon Mobil
Exxon Mobil (NYSE: XOM) produces crude oil and natural gas in the United States and internationally.
Shares of the energy conglomerate fell -5.7% on Monday making nearly $20 billion of market-cap disappear in one trading day. The stock closed at $79.67 and twelve separate valuation analyses imply that there now is a compelling 15.9% upside.
Source: finbox.io
Ray Dalio is a notable investor in the company. His fund currently holds a position worth $3.5 million. Dalio is a billionaire investor that founded Bridgewater, one of the largest hedge funds on Wall Street. His hedge fund was likely attracted by Exxon Mobil's strong fundamentals.
Worst Day In Six Years Offers 8 Great Buying Opportunities: Gap
The Gap (NYSE: GPS) operates as an apparel retail company worldwide.
Shares of the retailer lost -4.7% on Monday while finbox.io's fair value estimate of $37.99 per share calculated from eleven cash flow models imply 24.2% upside.
Source: finbox.io
It's worth noting that highly followed portfolio manager Louis Bacon currently holds a position in Gap worth $10.6 million. Bacon first came on the scene when he hit a home run in the 1987 stock market crash. Anticipating the crash he was short S&P futures, and then shifted long just as the market bottomed. Therefore, it is worth noting that he currently owns shares of Gap.
Worst Day In Six Years Offers 8 Great Buying Opportunities: F5 Networks
F5 Networks (NasdaqGS: FFIV) develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems.
The company's stock ended Monday's session at $136.88 per share, down -5.0% from Friday. The drop created a compelling margin of safety. Finbox.io's ten valuation analyses suggest that shares could increase 16.7% going forward.
Source: finbox.io
As revealed in his firm's most recent 13F filing, Greenblatt also owns 189,016 shares of FFIV which represents 0.4% of his stock portfolio.
Worst Day In Six Years Offers 8 Great Buying Opportunities
In conclusion, the table below ranks all 8 stocks by their blended upside following Monday's tumble.
| Ticker | Name | Upside (finbox.io) | Upside (Analyst Target) | Blend Upside |
|---|---|---|---|---|
| FL | Foot Locker | 34.4% | 16.4% | 25.4% |
| PFE | Pfizer | 25.9% | 16.6% | 21.2% |
| JCI | Johnson Controls | 28.3% | 13.2% | 20.8% |
| CVX | Chevron | 15.2% | 19.2% | 17.2% |
| HPQ | HP | 18.0% | 12.3% | 15.2% |
| XOM | Exxon Mobil | 15.0% | 11.5% | 13.2% |
| GPS | Gap | 24.2% | -0.2% | 12.0% |
| FFIV | F5 Networks | 16.7% | 5.5% | 11.1% |
Despite Monday's warning sign, many still argue that investors shouldn’t bail out and that the pull-back actually presents a long awaited opportunity. Bull markets don’t end just because they’ve lasted a long time, as this one has. The market and the overall economy is expected to enjoy additional tailwinds this year such as the recent cut in corporate taxes. GDP is expected to grow 2.9% in '18 vs 2.3% in '17. The unemployment rate is expected to further decrease from 4.1% to 3.8%. Lastly, business spending is expected to increase by 7% this year.
As a result, value investors may want to take a closer look at the companies above.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.
image source: udemy
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron's, Seeking Alpha and investing.com.
Matt can be reached at [email protected].
