The 10 most overbought and oversold ASX 200 stocks – Week 45

Chicken nuggets anyone? Shares in Inghams (ASX: ING) rallies 17.7% last week after an unexpectedly positive earnings upgrade for the first-half of FY24. The company said it expects underlying net profit to come in at approximately $71.0 million compared to analyst expectations of just $42.9 million.

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, Inghams is the most overbought stock with an RSI of 83.

The Most Overbought Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 3 November 2023 close.

Inghams is in the midst of an earnings upgrade cycle as consumers opt for more chicken and less red meat. Here's a recap of recent developments:

• August reporting season: Inghams smashed FY23 earnings expectations, with underlying net profit up 67.7% to $71.1 million (vs. $58.0 million expected). This reflected the successful roll out of price hikes to offset persistent cost inflation across feed, fuel and freight.

• Share price response: Ingham shares rallied almost 30% between 16 and 30 August. The stock did not pull back sharply either, with a drawdown of no more than 9% from the 30 August high.

• Broker response: Most brokers noted further catalysts ahead including further prices increases in FY24, tight supply and robust demand. The average price target across 11 ratings increased 11.2% to $3.54 after the company's FY23 results

• 1H24 trading update: Most metrics in the trading update were running well-ahead of consensus expectations. Management attribute the strong performance to: Continued improvement in operational performance, strong demand for poultry, further improvements in wholesale pricing and an accelerated recovery in New Zealand.

Inghams experienced a 7.9% jump on the day of the announcement – Tuesday, 31 October – and rallied an additional 6.5% in the three days that followed. This might reflect the sheer magnitude of the earnings upgrade (plus positive broker comments).

Inghams daily chart (Source: TradingView)

The Most Oversold Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 3 November 2023 close.

The oversold stocks list continues to reiterate the same theme – The market does not have much dip buying appetite, especially for stocks that have had to raise large amounts of capital or reported unexpectedly weak earnings.

Here's a recap of the main suspects and the selloff catalyst/date:

• Orora (6 Sept opened 12.4% lower after raising $450 million at $2.70 per share or a 14.5% discount to its last close

• AMP (18 Oct) sold off around 7% in the three days after a guidance downgrade

• Credit Corp (18 Oct) tumbled 31% after flagging a substantial impairment

• Liontown (20 Oct) sold off 31.9% after raising $365 million at $1.80 per share or a 35.5% discount to its last close