Is ON Semiconductor Corporation (ON) the Most Oversold S&P 500 Stock in 2024?
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We recently published a list of 10 Most Oversold S&P 500 Stocks in 2024. In this article, we are going to take a look at where ON Semiconductor Corporation (NASDAQ:ON) stands against other most oversold S&P 500 stocks in 2024.
Strong economic growth and the prospect of declining interest rates continue to support gains in global equities. That being said, elevated valuations over the past 2 years, mainly in the US, have put global stocks in a vulnerable position, opines Goldman Sachs Research. By the close of last year, the S&P 500 saw one of its strongest 2-year periods of returns since the year 1928. Much of this increase demonstrates better fundamental growth than investors had expected, with higher valuations acting as a significant contributor.
As per Morgan Stanley, while several investors continue to favour recently successful approaches, like passive exposure to the broader S&P 500 Index, a more diversified investment strategy might provide better risk-adjusted returns. The benchmark US equity index remains richly priced and excessively concentrated. The 10 biggest stocks in the S&P 500 index make up for ~40% of its total market capitalization, making it excessively dependent on certain mega-cap tech companies continuing to exceed ambitious performance forecasts.
=With the S&P 500 anticipated to post a marginal 7% return in 2025, other regions, sectors, and asset classes might become more attractive, says Morgan Stanley. Generally, the stocks and bonds have an inverse relation, offering a natural hedge in diversified portfolios. However, the current trends have demonstrated that such assets are moving in tandem, with both witnessing losses simultaneously, as was seen in 2022. Morgan Stanley believes that the higher bond yields and lower bond prices have been coinciding with lower stock prices. This trend highlights the importance of diversifying beyond traditional asset classes to mitigate risks.
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While there are expectations of equity markets making further progress over the year as a whole — largely fueled by earnings — they have become vulnerable to a correction either due to higher bond yields and/or disappointments on growth in economic data or earnings, says Goldman Sachs. A fall in interest rates has been related to robust equity returns. In the US, the US Fed’s rate-cutting cycles have often coincided with higher stock prices as long as the broader economy avoids recession.
Amidst a favorable backdrop, Goldman believes that 3 main factors complicate the outlook for the stock rally. First, the pace of recent gains reflects much of the optimism the analysts expect regarding economic growth. Second, elevated valuations might limit the forward returns. Finally, the third factor is the unusually high market concentration. As per Peter Oppenheimer, chief global equity strategist and head of Macro Research in Europe, equities tend to be more vulnerable to growth disappointments due to increased concentration of equity market returns.
Therefore, investors are required to focus on companies trading at reasonable valuations, and that have strong fundamentals.
Is ON Semiconductor Corporation (ON) the Most Oversold S&P 500 Stock in 2024?
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To list the 10 Most Oversold S&P 500 Stocks in 2024, we used a screener and filtered out the stocks present in the S&P 500 Index. Next, we shortlisted the ones that have declined significantly over the past year. Finally, we mentioned the hedge fund sentiment around each stock, as of Q3 2024. The stocks are arranged in ascending order of their hedge fund sentiments.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
% Decline In 1 Year: ~36.5%
Number of Hedge Fund Holders: 45
ON Semiconductor Corporation (NASDAQ:ON) offers intelligent sensing and power solutions in the US and internationally. The company’s stock has been subject to softness in demand trends and inventory adjustments by the customers. During H1 2024, the dependency of revenue on automotive products, and lower industrial revenue (because of lower industrial activity and inventory buildup) further contributed to the decline in stock price. However, ON Semiconductor Corporation (NASDAQ:ON) remains focused on maintaining its financial discipline, streamlining its operations, and continuing to deliver high-value, differentiated intelligent power and sensing solutions.
The company has announced that it has completed its acquisition of the Silicon Carbide Junction Field-Effect Transistor (SiC JFET) technology business, including the United Silicon Carbide subsidiary, from Qorvo for $115 million. The addition of SiC JFET technology is expected to complement ON Semiconductor Corporation (NASDAQ:ON)’s extensive EliteSiC power portfolio and enable it to address the need for high energy efficiency and power density in the AC-DC stage in power supply units for AI data centers.
Overall, ON ranks 6th on our list of most oversold S&P 500 stocks in 2024. While we acknowledge the potential of ON as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than ON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
Emma is a tech enthusiast with a passion for everything related to WiFi technology. She holds a degree in computer science and has been actively involved in exploring and writing about the latest trends in wireless connectivity. Whether it's…
