How To Find Beaten-Down S&P 500 Stocks With Upside

Evolving U.S. tariff policies have made waves in the stock market. In April, the S&P 500, a benchmark index for large-cap stocks, fell 20% from a February high before rallying back to a 3% loss for the year. The volatility may wreak havoc on your portfolio returns, but it also creates opportunities for long-term investors.

This guide explains how to use a simple, free stock screener to find those opportunities—good stocks with upside—in minutes. Also included are tips for researching those stocks to ensure they align with your investment goals.

1. Pick A Screener

Stock screeners are applications that filter equities by parameters you set. Screeners can be incredibly powerful in two scenarios:

1. You know which metrics and traits are associated with the type of stock you need.
2. Or, you want to simulate a portfolio to test a metrics-based investment thesis. For example, you might define the metrics you’d like to see in invest-able dividend stocks. You can screen for those metrics and create a watch list portfolio from the results. The portfolio’s behavior over time can validate your investment thesis or send you back to the drawing board to adjust.

Stockanalysis.com and finviz.com have popular and free online stock screeners.

2. Set Investment Parameters

You can screen for beaten-down S&P 500 stocks with upside using four parameters:

1. Inclusion in the S&P 500 index: S&P 500 stocks are large, well-established companies that meet profitability and liquidity requirements. While there are exceptions, S&P 500 companies generally have more financial strength and stability than their smaller counterparts. This parameter quickly surfaces companies that may be more prepared to manage through a recession.
2. Negative year-to-date price change: Investors can overreact to economic news and company updates. The overreaction pushes stock prices into bargain territory. You’ll need to research each stock further to determine if the low price is temporary or appropriately reflects the company’s value.
3. Price target upside percentage above 20%: Price targets are analysts’ forecasts for a stock’s future price, usually in 12 months. Financial websites typically average these forecasts for each stock and display the average as a consensus price target. Upside is the percentage difference between the consensus target and the stock’s current price.
4. Analyst rating of buy or strong buy: Analysts are not infallible, but their opinions are well-informed. This parameter should align with a high price target upside percentage.

Once the screener returns the list of stocks matching these parameters, you can sort and filter the results to find your best options. For example, to review the worst-performing S&P 500 stocks, sort the list by highest to lowest year-to-date price change.

3. Research Stocks Before You Buy

The real work of investing—research—begins after the screening process. Research helps you make confident investing decisions by answering these key questions:

1. Does the stock align with my investing timeline?
2. Does the stock fit with my risk tolerance?
3. Is the stock price down temporarily or is there a permanent, fundamental change in the business outlook?

Investing Timeline

Your investing timeline is how long you will keep your funds invested before liquidating. When buying stocks, you should plan on remaining invested for at least five to 10 years. The longer you remain invested, the lower your risk of loss. This is because the stock market can be volatile over short time frames, but normally trends up over longer periods. Two fun facts from an analysis by Ben Carlson crystallize this point:

1. The stock market has never lost value over any 20 years.
2. The lowest annual return over any 30 years was 7.8%.

With a long investing timeline, you don’t have to worry too much about short-term volatility. You can choose to remain invested until the market returns to growth. In doing so, you avoid realizing losses and keep yourself positioned to benefit from a recovery.

Risk Tolerance

Risk tolerance refers to how much price volatility you can accept. Investing within your risk tolerance parameters helps you make informed, logical decisions rather than emotional ones.

If you prefer safer investments, lean into:

• Companies you know.
• Large businesses with a history of managing through all economic and financial market cycles.
• Business models you understand.
• Defensive sectors like utilities, consumer staples, and healthcare.
• Stocks that pay regular and increasing dividends.

Temporary Or Permanent Price Decline

Identifying what’s prompting a stock price decline usually isn’t hard. First, review the stock’s price history relative to the S&P 500. If the two trajectories are similar, macro trends may be prompting the stock price decline—rather than circumstances specific to the company. Macro trends are cyclical, meaning they resolve and repeat over time.

Next, look for negative headlines about the company that align with dates the price fell. Ratings changes and disappointing earnings reports are common reasons a stock’s price can decline suddenly. Use investing websites like marketbeat.com, stockanalysis.com or Yahoo! Finance to review analysts’ rating changes and recent sales and earnings performance compared to expectations.

It’s also smart to review the company’s earnings releases and earnings call transcripts. The leadership team’s characterization of the business climate and the outlook, while subjective, can be instructive. From there, you should start to form an opinion about how permanent the stock price decline is. If three conditions are true, you may be looking at a nice buying opportunity:

1. Short-term or cyclical circumstances are behind the stock price decline.
2. The company has the financial strength to manage through the unfavorable circumstances.
3. Your investing timeline is long enough to wait for the turnaround.

Stocks With Upside

This framework describes a powerful investing strategy that only some investors have the discipline to implement. Buy good companies when their stock prices fall and wait patiently for a recovery. Investing for long-term wealth can be that simple.