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While the S&P 500 continues to touch record highs, there are a few stocks part of the index that are oversold, making them attractive to contrarian and value investors. Here we look at three such stocks that include DTE Energy (NYSE: DTE), CSX Corp. (NASDAQ: CSX), and Southwest Airlines (NYSE: LUV).
CSX Corp. has outpaced the S&P 500
CSX Corporation provides rail-based freight transportation services. The company offers rail services, and transportation of intermodal containers and trailers, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations.
CSX is one of the largest railway operators in the U.S. with a network of 30 terminals and a 19,500-route mile rail network serving a population in 23 states.
CSX Corp lost 4% in June and is down 4.5% from record highs. However, it’s still gained close to 280% in the last five years, outpacing the S&P 500 which has returned 107% since July 2016. The performance of rail stocks is closely tied to economic activity and they tend to perform well during growth.
While economic indicators are trending positively higher, transportation stocks underperformed the indexes last month. Further, CSX also has exposure to coal transportation, and investors would be worried about the long-term prospects or demand for coal energy.
CSX remains a top-quality stock, trading at a market cap of $75 billion.
Southwest Airlines stock is down 8% in the last month
The recent surge in the number of COVID-19 cases in several countries including the U.K. and other Asian countries has negatively impacted equity markets in the last few trading sessions. Stocks part of the airline and tourism sectors have underperformed the broader indexes as a result.
In the last month, shares of Southwest Airlines have lost over 8% in market cap while the stock is down 17% in the last three months.
However, in June, Southwest Airlines disclosed it added 34 Boeing 737 Max 7 aircraft to its existing orders for 2022 bringing the total to 234 planes. In fact, Southwest is forecast to order 737 MAX 7s and 8x from the aircraft manufacturer through 2027 which suggests the company is optimistic about long-term demand to normalize once the dreaded pandemic is bought under control.
Revenue is also forecast to increase on a month-over-month basis for the third consecutive month in June as it “continued to experience modest, consistent improvements in business passenger demand and bookings."
Wall Street expects Southwest Airlines' sales to increase by 70% to $15.4 billion in 2021 and by 38% to $21.24 billion in 2022. This will allow the company to improve its bottom line from a loss per share of $6.22 in 2020 to adjusted earnings of $3.18 in 2022.
Analysts also have a 12-month average price target of $70 for Southwest Airlines stock which means it's trading at a discount of 38% right now.
DTE Energy Company
The final stock on the list is DTE Energy which is down 16% in the last month. DTE Energy is a diversified holding company. Its utility operations include Detroit Edison and MichCon while non-utility subsidiaries are engaged in energy marketing and trading as well as other electricity, coal, and gas-related businesses.
Its electric utility business has 2.2 million customers while the natural gas utility segment has 1.3 million customers. DTE Energy recently announced that its midstream business will be spun off and the transaction was completed on July 1, which is the primary reason behind the price decline in stock prices.
DTE Energy stockholders received one share of DT Midstream for every two shares owned in the former.
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