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The following is a list of oversold stocks, as defined by the Relative Strength, or RSI(14), indicator. All of the stocks mentioned below have RSI(14) levels below 30, which usually signals oversold conditions. However, these companies have also seen significant institutional buying over the last three months.

The smart money seems to think there's upside to these names. What do you think?

To help you find ideas with potential, we've done some backtesting on the stocks mentioned below. The strategy used for the backtest is also described below.

Institutional data sourced from Reuters, RSI and short float data sourced from Finviz. Backtesting data sourced from Fidelity.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.


Note on Backtesting Strategy - RSI(14) Oversold: Buy 100 shares when the Relative Strength Index becomes oversold (below 30). If the stock price continues to fall, the strategy continues to buy more stock as the RSI crosses below the 25, 20, 15, 10 and 5 levels. The strategy sells all the positions when the RSI indicator rebounds above 55. Access a complete backtest for each company here.

The list has been sorted by the change in institutional ownership.

1. Hancock Holding Co. (NASDAQ:HBHC): Regional Bank. Market cap of $1.19B. RSI(14) at 29.87.

Net institutional shares purchased during current quarter at 245.0K, vs. 631.3K net purchases during previous quarter. Net mutual fund shares purchased during current quarter at 28.0K, vs. 476.9K purchased in the previous quarter. Short float at 9.74%, which implies a short ratio of 11.84 days. The stock has lost -17.6% over the last year.

HBHC Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 18 times. The trade produced a profitable result 11 times, with seven unprofitable trades. The strategy produced a total net profit of $859.00 (average profit per day at $1.12), easily beating the buy and hold strategy during the time, which produced a net profit of -$1,087 (average profit per day at -$0.86). The maximum drawdown of the strategy came in at a loss of -$3,848, slightly worse than the buy and hold max drawdown loss of -3,504.

2. hhgregg, Inc. (NYSE:HGG): Electronics Stores Industry. Market cap of $692.83M. RSI(14) at 29.48.

Net institutional shares purchased during current quarter at 4.2M, vs. 1.1M net purchases during previous quarter. Net mutual fund shares purchased during current quarter at 1.7M, vs. 643.8K purchased in the previous quarter. Short float at 32.47%, which implies a short ratio of 14.48 days. The stock has lost -7.49% over the last year.

HGG Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 15 times. The trade produced a profitable result nine times, with six unprofitable trades. The strategy produced a total net profit of $539 (average profit per day at $1.32), easily beating the buy and hold strategy during the time, which produced a net profit of $232. (average profit per day at $0.26). The maximum drawdown of the strategy came in at a loss of -$1,679, slightly worse than the buy and hold max drawdown loss of -1,282.

3. Lance, Inc. (NASDAQ:LNCE): Processed and Packaged Goods Industry. Market cap of $639.33M. RSI(14) at 23.49.

Net institutional shares purchased during current quarter at 969.6K, vs. 2.4K net purchases during previous quarter. Short float at 1.42%, which implies a short ratio of 4.61 days. The stock has lost -8.84% over the last year.

LNCE Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 23 times. The trade produced a profitable result 20 times, with three unprofitable trades. The strategy produced a total net profit of $3,894 (average profit per day at $7.14), easily beating the buy and hold strategy during the time, which produced a net profit of $107 (average profit per day at $0.09). The maximum drawdown of the strategy came in at a loss of -$1,159, lower than the buy and hold max drawdown loss of -1,167.

4. Tata Communications Limited (NYSE:TCL): Telecom Services Industry. Market cap of $1.36B. RSI(14) at 18.38.

Net institutional shares purchased during current quarter at 42.5K, vs. 196.3K net purchases during previous quarter. Short float at 0.47%, which implies a short ratio of 2.63 days. The stock has lost -25.93% over the last year.

TCL Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 26 times. The trade produced a profitable result 17 times, with nine unprofitable trades. The strategy produced a total net profit of $2,713 (average profit per day at $4.51), easily beating the buy and hold strategy during the time, which produced a net loss of -$832. (average profit per day at -$0.66). The maximum drawdown of the strategy came in at a loss of -$705, much lower than the buy and hold max drawdown loss of -3,076.

5. Net 1 Ueps Technologies Inc. (NASDAQ:UEPS): Business Services Industry. Market cap of $480.9M. RSI(14) at 25.49.

Net institutional shares purchased during current quarter at 965.9K, vs. 822.2K net purchases during previous quarter. Short float at 0.69%, which implies a short ratio of 1 day. The stock has lost -39.35% over the last year.

UEPS Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 34 times. The trade produced a profitable result 26 times, with eight unprofitable trades. The strategy produced a total net profit of $3,765 (average profit per day at $4.53), easily beating the buy and hold strategy during the time, which produced a net loss of -$2,179 (average profit per day at -$1.73). The maximum drawdown of the strategy came in at a loss of -$3,092, much worse than the buy and hold max drawdown loss of -2,515.

6. USANA Health Sciences Inc. (NYSE:USNA): Drug Related Products Industry. Market cap of $558.95M. RSI(14) at 21.92.

Net institutional shares purchased during current quarter at 332.0K, vs. 467.4K net purchases during the previous quarter. Net mutual fund shares purchased during current quarter at 53.8K, vs. 388.6K purchased in the previous quarter. Short float at 6.28%, which implies a short ratio of 10.53 days. The stock has gained 42.05% over the last year.

USNA Backtesting Results, Based On 100-Share Trades: Over the last five years, the stock's RSI(14) alert has been triggered 33 times. The trade produced a profitable result 20 times, with 13 unprofitable trades. The strategy produced a total net profit of $6,670 (average profit per day at $7.16), easily beating the buy and hold strategy during the time, which produced a net loss of -$714 (average profit per day at -$0.57). The maximum drawdown of the strategy came in at a loss of -$5,037, much worse than the buy and hold max drawdown loss of -4,301.

Source: Backtesting Six Oversold Stocks Witnessing Institutional Buying