Buy the Dip: 4 Stocks the Market Marked Down Too Far Ahead of Big Catalysts

Key Points

• Heavy concentration in a handful of mega-cap leaders has left many quality stocks trading below their 50-day moving averages despite solid earnings prospects.
• MercadoLibre and Novo Nordisk add international exposure, and Alexander Green views their margin and earnings worries as overdone.
• Tyler Technologies and Summit Therapeutics round out the list, one a sticky government software business and the other a speculative biotech awaiting an FDA decision.

The S&P 500 remains in a confirmed uptrend, yet a big slice of the market isn't along for the ride. Money keeps crowding into the same mega-cap leaders, and plenty of solid companies sit below their 50-day moving averages even as their earnings outlooks hold up.

That gap between price and fundamentals is where opportunity tends to hide. When everyone chases a handful of names, everything else gets marked down, sometimes for reasons that don't survive a closer look.

Four stocks fit that profile: a Latin American e-commerce leader, a GLP-1 drugmaker trading at a discount, a government software provider shaking off AI fears and a speculative biotech awaiting a major regulatory decision. Each has been knocked down. Each also has something that could change the conversation.

The real question isn't whether these stocks are cheap. It's whether the market has priced them for a future worse than the one actually unfolding.

Market Concentration Leaves Quality Stocks Trading at a Discount

The eight largest stocks in the S&P 500 now account for more than 35% of the index's total market value, according to Alexander Green, chief investment strategist at The Oxford Club. Investors keep piling into Microsoft NASDAQ: MSFT, NVIDIA NASDAQ: NVDA, Oracle NYSE: ORCL and the other hyperscalers—the cloud giants funding the AI buildout.

That leaves the other 492 stocks, plus smaller and foreign companies, overlooked. Many have earnings prospects their share prices don't yet reflect, in Green's view, and share prices follow earnings over time. The backdrop helps, with a solid economy, full employment, and a consensus estimate Green cites of roughly 30% third-quarter profit growth.

Post-Midterm Seasonality Gives Beaten-Down Stocks a Historical Tailwind

The calendar adds another push. The nine months after a midterm election, covering the fourth quarter and the following two quarters, have historically been a strong stretch for stocks, a pattern money manager Ken Fisher calls the "midterm miracle." Green puts the average gain at about 19.5%, roughly double the S&P 500's typical annual return near 10%.

Party control barely matters. Gridlock or a sweep, markets tend to rally once policy uncertainty clears. History is no promise, but it keeps the door open for beaten-down names with improving earnings.

Latin American E-Commerce and GLP-1 Drugs Bring Global Growth at a Discount

The United States makes up about 25% of the global economy and 4.2% of the world's population, per Green, who spent his first 16 years on Wall Street helping Americans invest abroad. International stocks look cheap after years of lagging, and they add currency diversification if the dollar weakens.

MercadoLibre NASDAQ: MELI, often called the Amazon of Latin America, dominates e-commerce in a fragmented region where online shopping is still gaining ground. Green argues that its grip there is stronger than that of Amazon NASDAQ: AMZN in the United States. The stock faltered on margin worries tied to spending for long-term growth, a concern he considers overdone. Evidence that the spending is converting into earnings could shift sentiment, which makes margins the line to watch.

Novo Nordisk NYSE: NVO, maker of the GLP-1 weight-loss drug Wegovy, slid after multiple earnings misses and rising competition from category leader Eli Lilly NYSE: LLY.

Green sees room for both. Insurers and governments are expanding coverage as these drugs are linked to less heart disease, diabetes and other obesity-related illnesses and patients who stop often regain the weight.

He describes the stock as trading below 10 times earnings with a large dividend yield. Pipeline approvals and earnings surprises could change the story.

The Oxford Club recently added the stock back to its portfolio after an earlier position was stopped out with what Green described as a 123% gain.

AI Fears Overshoot the Fundamentals in Government Software

Tyler Technologies NYSE: TYL sells software that helps local, state, federal, and foreign governments handle everything from building permits to appointment scheduling. Government contracts are hard to win and hard to lose, which keeps earnings unusually stable.

The stock got swept into this year's software-as-a-service (SaaS) sell-off on fears that AI would make such platforms obsolete. Green calls that overblown, arguing AI should augment Tyler's tools rather than replace them, a case Salesforce NYSE: CRM CEO Marc Benioff has made about his own business.

Shares have bounced in the short term but remain in a longer-term downtrend. Rising earnings are what could turn the bounce into a trend.

A Pre-Revenue Biotech Offers a Speculative Bet on an FDA Catalyst

Summit Therapeutics NASDAQ: SMMT is the high-risk name on the list. The pre-revenue biotech's lead lung cancer drug has shown strong results in Chinese trials, and Green expects a U.S. FDA decision in mid-November, with more trial data from China due in the fourth quarter. Approval would pit it against Merck NYSE: MRK and its category-leading Keytruda.

Shares have traded as high as about $33 over the past 18 months before falling below $15, per Green, who notes that famed biotech investors the Baker Brothers hold a large stake.

He suggests a small position and taking at least half off on a big pop. For traders, he floated November call options, which pay off only if the catalyst delivers.

Earnings and Hard Catalysts Could Close the Gap for Beaten-Down Stocks

Margin worries at MercadoLibre, earnings misses at Novo Nordisk, the AI scare around Tyler Technologies and the regulatory wait at Summit Therapeutics knocked these four stocks down. What connects them is a market pricing in disappointment that the fundamentals may not deliver. None of these setups depends on the mega-cap leaders stumbling. They depend on earnings and catalysts actually showing up.

The upside is a rerating as results improve, possibly aided by the post-midterm pattern. The risk is that skepticism proves right, through thinner margins, further share loss to Eli Lilly, renewed software pressure or an FDA rejection that could send Summit sharply lower.

Green manages that risk with trailing stops. With a 25% stop on a stock bought at $20, the exit starts at $15 and rises with the price, reaching $22.50 at $30. Profits run while losses stay small.

Stay focused on earnings revisions and catalyst dates, because that's what moves beaten-down stocks back toward fair value.

Green and his team at The Oxford Club have also published a special report on Phase 2 of the AI story, focused on companies the market hasn't caught onto yet. Get Alexander Green's special report on the next phase of AI stocks.