These stock ‘babies’ have been thrown out with the ‘bathwater’ and could be buys in the correction

Published Fri, Jan 28 20221:02 PM EST

When stocks sell-off, as they have done this month, investors often throw out the proverbial baby with the bathwater. In today's market, saying "throw out the baby with the bathwater" alludes to investors that have let momentum drive a stock below the level where it should have otherwise bounced. CNBC PRO is finding these so-called "babies." Despite their 10% or more pullback, several stocks are cheap, have yield, are high quality, and Wall Street believes they are due for a comeback. The S & P 500 is headed for its worst month since the pandemic-spurred market turmoil in March 2020 as investors worry about inflation, supply chain issues and the upcoming rate hikes from the Federal Reserve. The 500-stock average is slipping into correction territory, down more than 10% from its intraday high earlier this month. The S & P 500 has dragged many stocks into correction with it, but a handful of the names could be ripe for a comeback. CNBC PRO screened for S & P 500 stocks that are in correction, down 10% from their high, with a dividend yield above the market, which is currently around 1.34%. Plus, these names are cheap compared to history, based on their price-to-earnings ratio vs. its 5 years average. The stocks included on the list also have the majority of Wall Street analysts assigning them a buy rating, with a consensus price target calling for at least a 10% comeback in the stock. Lastly, these stocks are considered high quality with Standard & Poor's giving the equities a 'quality rating' of A- or better. Take a look at CNBC PRO's list here. Big box retailer Walmart has pulled back nearly 11% from its high but analysts see the stocks rallying nearly 24% from here. Plus, roughly two thirds of Wall Street firms give Walmart a buy rating. Fidelity National Information Services is another potential "baby," after its nearly 30% pullback from the high. Wall Street sees the stock rallying more than 31% from its current levels. Toymaker Hasbro 's 16% drop from its high might have been overdone, since analysts covering the stock see it gaining more than 30% in the next 12 months. Darden Restaurants — which owns Olive Garden and Longhorn Steakhouse — is more than 17% off its high. Yet, Wall Street expects a gain of nearly 23% for the restaurant stocks. Plus, Darden has the largest dividend yield on the list, 2.5%. Stanley Black & Decker has taken a 23% pullback from its high, but analysts forecast a 33% rally in the industrial tool and household hardware stock. Healthcare giant Cigna also earned a spot the list. Cigna is more than 16% off its high and is expected to increase more than 15%, according to Wall Street analysts. Assurant and State Street are also potential "babies" that showed up on CNBC PRO's list. After pulling back more than 13% and 11%, respectively, Assurant is expected to gain more than 30% and State Street is forecast to rally nearly 25% in the next 12 months.

Noah Clayton | Getty Images

When stocks sell-off, as they have done this month, investors often throw out the proverbial baby with the bathwater.

In today's market, saying "throw out the baby with the bathwater" alludes to investors that have let momentum drive a stock below the level where it should have otherwise bounced.