The 10 most overbought and oversold ASX 200 stocks – Week 29
Household names like Woolworths, Macquarie, CSL and Telstra rallied into overbought territory last week.
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Mentioned
KEY POINTS
- Telstra's stock has surged into overbought territory following mobile plan price increases, with analysts upgrading earnings forecasts and viewing the move positively for the company's earnings outlook
- Several large Australian companies, including Woolworths, Macquarie, and CSL, are showing strong momentum based on their high Relative Strength Index (RSI)
- Lifestyle Communities' stock has fallen sharply after multiple earnings downgrades, highlighting the risks of investing in companies with declining financial performance
You know the market is headed in the right director when some of our largest and most important companies like Telstra, Woolworths, Macquarie and CSL are rallying into overbought territory.
The 14-day Relative Strength Index is a momentum indicator that measures the magnitude and speed of recent price changes to assess whether or not a stock is overbought or oversold.
An RSI of 70 or above is considered to be overbought, which means the stock is rising too quickly and likely to experience a pullback. Meanwhile, an RSI of 30 or below is considered to be oversold, which means the stock is falling too quickly and is likely to experience a rebound.
Based on this indicator, Telstra is the most overbought stock on the ASX 200 with an RSI of 75.
Most Overbought ASX 200 Stocks
Ticker | Company Name | RSI | 1-Month % | Close Price | Target price | Upside |
|---|---|---|---|---|---|---|
Telstra Group | 75 | 7.5% | $3.88 | $4.12 | 6.2% | |
Woolworths Group | 75 | 6.2% | $35.06 | $35.19 | 0.4% | |
Macquarie Group | 75 | 6.9% | $210.06 | $192.55 | -8.3% | |
CSL | 75 | 7.2% | $311.70 | $317.09 | 1.7% | |
Pinnacle Investment Management | 74 | 13.6% | $15.84 | $13.98 | -11.7% | |
Genesis Minerals | 73 | 18.8% | $2.15 | $2.28 | 6.0% | |
NRW Holdings | 72 | 6.1% | $3.31 | $3.18 | -3.9% | |
Coles Group | 72 | 2.7% | $17.63 | $17.57 | -0.3% | |
Flight Centre | 72 | 14.3% | $22.66 | $23.05 | 1.7% | |
Bendigo and Adelaide Bank | 71 | 6.0% | $12.02 | $10.36 | -13.8% |
Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 19 July 2024
Telstra shares have surged into overbought territory following the abandonment of CPI-indexed mobile plan pricing and confirmation of $2-4 monthly price increases later this year. The stock has climbed 6% since the announcement, reaching its highest level since February 2024.
Major brokers have piled on Buy ratings for Telstra. Across 16 sell-side ratings, 75% of them are a Buy with an average price target of $4.15. The price hikes were generally viewed as modest but positive steps in balancing cost of living pressures with the need to invest in its network. Some of the key points highlighted by analysts include:
Telstra's stable market share and low churn rates support the sustainability of these price adjustments, with only minor expected impacts on subscriber retention
Macquarie upgraded its FY25 earnings forecast by 8% to reflect the larger-than-expected price increase as well as FY26 and FY27 earnings forecasts by 14% and 17% respectively
Goldman Sachs said the price increase should provide greater confidence around its FY25 guidance
Telstra shares rose 2.2% on the announcement day (9-Jul) and have gained 3.9% since (10-22 Jul). This demonstrates the sustained buying and optimism around an update that's changed its earnings profile.
Most Oversold ASX 200 Stocks
Ticker | Company Name | RSI | 1-Month % | Close Price | Target price | Upside |
|---|---|---|---|---|---|---|
Lifestyle Communities | 27 | -22.0% | $9.51 | $15.68 | 64.9% | |
South32 | 30 | -7.6% | $3.42 | $3.94 | 15.2% | |
Alumina | 30 | -5.9% | $1.51 | $1.48 | -2.0% | |
Deterra Royalties | 31 | -5.6% | $3.88 | $4.69 | 20.9% | |
Rio Tinto | 31 | -4.8% | $113.99 | $131.88 | 15.7% | |
Megaport | 33 | -8.2% | $11.01 | $15.53 | 41.1% | |
Viva Energy Group | 35 | -4.1% | $3.05 | $4.02 | 31.8% | |
EVT | 35 | -4.0% | $10.80 | $13.27 | 22.9% | |
Deep Yellow | 35 | -14.0% | $1.26 | $1.72 | 37.1% | |
Domino's Pizza | 36 | -7.5% | $33.73 | $43.41 | 28.7% |
Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 19 July 2024
Lifestyle Communities has experienced a severe downturn, plummeting almost 50% since its half-year results on 20 February 2024. The stock has endured four major selloffs this year, all earnings-related: 20-Feb (-12.0%), 23-Apr (-13.5%), 15-Jul (-18.2%), and 19-Jul (-14.5%).
This serves as a reminder that its generally not wise to chase stocks that are downgrading earnings. More often than not, there's more than just one downgrade.
This trend underscores the risks of investing in companies with declining earnings. Often, one downgrade is followed by more. The latest update on 19 July projected FY24 operating profit after tax of $52.4-53.4 million, representing a year-on-year decline of about 25%. This mid-point estimate falls 8% below consensus ($57.8 million) and 14% below Citi's forecast. The company also withdrew all forward-looking guidance, citing difficulty in quantifying future sales and settlements.
