5 Crushed Stocks That May Come Roaring Back

Includes: AA, BAC, CAT, GS, XOM
by: Convex Strategies

If the current selling we've been seeing is ending, and the market begins to rebound to levels seen earlier this year, many stocks will become significantly more expensive, achieving gains in the area of 20%-50% - and quick. Here are 5 oversold choices:

  1. Caterpillar (NYSE:CAT): Caterpillar had been an incredibly successful stock in 2011, reaching a high of $116.00. Operating in the industrial sector, and more specifically in farming and machinery, the stock has taken a big hit along with the rest of the market due to economic worries. A big slowdown in the economy will severely crimp the earnings of industrial companies. Because Caterpillar is more linked to farming, however, Caterpillar will likely continue to do OK through a soft patch if that is indeed what we are in. Agricultural prices remain high and farmers are making sizable profits, allowing them to continue to invest in new machines and other equipment. Any hint of an uptick in the economy could send Caterpillar back up to the $100 mark, a 20% gain from current levels.
  2. Alcoa (NYSE:AA): Alcoa has gotten hit very hard with the recent downturn, down 23% from its $15 level in late July. As is the case with Caterpillar, if the economy is not as bad as the market is pricing, and the selling really just has been caused from irrational fears, investors will quickly jump on this industrial, which has a .26 PEG ratio. Additionally, its 8.11 forward P/E looks particularly cheap. A return to $14 would leave you with a massive 32% gain from current levels.
  3. Bank of America (NYSE:BAC): This troubled name has been absolutely mutilated during this downturn. At about $10.25 before all the drama, it has taken a 35% hit, mostly due to worries regarding European debt, a weaker economy, and the AIG lawsuit. If BAC plays its cards right and settles some big lawsuits, gets lucky and the issues in Europe are kicked further down the road, and the economic news perks up, a return of 50% is possible if it reaches even $10.00.
  4. Goldman Sachs (NYSE:GS): Goldman hasn't done a lot wrong, other than just being a stock and being a financial. Off 20% from $135, Goldman is looking cheap on a valuation basis, at a 6.6 forward P/E. Lacking many of the same issues as money center banks, Goldman's recent haircut is probably overdone and investors should realize this rather quickly if the sentiment for the broader market changes. A return to $135 would get you a solid 22% increase from current levels.
  5. ExxonMobil (NYSE:XOM): At about $85 before the recent crisis, oil's selloff and general uncertainty sent this plunging 20%. Oil has actually begun staging a comeback, and is now nearing $85 once again. A return to $90 oil in the short term is likely, and Exxon is a leveraged play on the price of oil. Exxon and many other energy names have beaten nearly as much as the financials, and a return to $80 on Exxon would result in an 18% gain for shareholders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.