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8 battered stocks with big upside potential

When stocks crack—as they did in July and into August—some investors panic. But the savvy ones look for opportunities.

If analysts and researchers are right, there are eight beaten-down stocks in the broad Standard & Poor's 1500 index, including retailer Vitamin Shoppe (VSI), apparel seller Fossil Group (FOSL) and packaging maker Avon Products (AVP) that might be worth a second look.

These are the only stocks in the index (which includes large, mid-sized and small stocks) that are down 20% or more this year, get an average "outperform rating" from Wall Street analysts, get a "buy" or "strong buy" rating from S&P Capital IQ, a "neutral" or better rating from New Constructs and at least 10% upside to analysts' 18-month price targets.

A tube of Avon lipstick is shown in this photo in New York.
Scott Eells | Bloomberg | Getty Images
A tube of Avon lipstick is shown in this photo in New York.

That's quite a mouthful of standards to meet and a big reason why just 8 stocks in the S&P 1500 match up. S&P Capital IQ looks for companies with a number of attractive characteristics, while New Constructs zeroes in on companies that are reasonably priced compared to the present value of expected future cash flows.

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Just one of the eight stocks is deemed "attractive" by New Constructs, but at a "hold," at least investors know the stock isn't overvalued compared using New Constructs' methodology.

The best-known stock with the most upside in the eyes of Wall Street analysts is Vitamin Shoppe. Shares of the small-cap company, which sells all sorts of nutritional supplements is down 26%, is suffering even more than the broad small cap index. The company certainly didn't help its case in August by reporting earnings of 62 cents a share for the second quarter, missing views by 1.6%.

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Even so, analysts have a $50 a share price target on the stock, which would be 31% upside, says S&P Capital IQ. And it's not like expectations are all that lofty. Analysts expect the company to earn 52 cents a share in the current quarter, slightly down from the 53 cents a share it earned in the same quarter last year.

And then there's Avon Products, the world-famous cosmetics seller, which has been pummeled on Wall Street. Shares of the company are down 21% this year. Analysts are holding out a price target on the stock of $15.90 a share, which would be nearly 16% higher than the stock is at now. Expectations are a higher for this company, though, than they are with Vitamin Shoppe.

Analysts are calling for 21% higher earnings per share in the third quarter. There's reason to be skeptical, since Avon has missed earnings estimates three out of the past four quarters.

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The only stock out of the 8 to win New Constructs "attractive" rating is fashion accessory seller Fossil. The stock is down 20% this year even after beating earnings forecasts in the second quarter by 2% and the first quarter by 4%. Analysts are bullish on the stock too, holding out a $123.82 price target. If they're right, that's 28% potential upside.

All these forecasts are just that. Forecasts. But if these expectations pan out, investors could potential profit from the rough July, rather than panic.

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Below are the 8 S&P 1500 stocks that are down 20% or more this year, get "outperform" ratings from Wall Street analysts, "buy" or better ratings from S&P Capital IQ, "neutral" or better ratings from New Constructs with 10% or more upside to the average price target:

Company
Symbol
YTD % Ch.
S&P Capital IQ STARS
Upside to price target
Domtar UFS -24.00% 4 35.90%
Vitamin Shoppe VSI -26.30% 4 30.50%
Ryland Group RYL -22.40% 4 30.70%
Fossil Group FOSL -19.50% 4 28.20%
Inter Parfums IPAR -20.60% 4 25.40%
Informatica INFA -21.10% 5 21.00%
CommVault Systems CVLT -29.70% 4 18.80%
Avon Products AVP -20.50% 4 16.10%

Sources: S&P Capital IQ, USA TODAY research
S&P STARS ratings: 5- Strong buy, 4- Buy, 3- Hold, 2- Sell, 1- Strong sell

—By Matt Krantz of USA Today

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