Oversold S&P 500 Stocks: Is Now the Time to Buy IBM and LULU?

In Q3 2025, the S&P 500 has seen a wave of volatility, with several large-cap stocks trading at multi-year lows. Among them, International Business Machines (IBM) and lululemon Athletica (LULU) stand out as candidates for value-focused investors. Both stocks are trading in oversold territory based on technical indicators like the Relative Strength Index (RSI), while their fundamentals suggest a divergence between current valuations and intrinsic worth. This article explores whether the convergence of technical and fundamental signals creates a compelling case for entry, or if caution is warranted.

Technical Analysis: RSI and Momentum Exhaustion

The RSI, a momentum oscillator measuring price strength over 14 days, is a critical tool for identifying overbought and oversold conditions. As of August 2025:
- IBM's RSI is 14.20, far below the 30 threshold for oversold conditions. This suggests selling pressure has exhausted, potentially setting the stage for a rebound.
- LULU's RSI is 16.2, similarly oversold, with a steeper decline in recent months.

For IBM, the RSI is part of a broader bearish technical picture. The stock is trading below its 50-day ($246.97), 200-day ($270.57), and 5-day ($234.90) moving averages. Its MACD is negative at -3.780, and the 9-day RSI (2.78%) and 20-day RSI (1.65%) reinforce weak momentum. However, the golden cross—a bullish signal—emerged in July, suggesting a potential reversal.

LULU's RSI, while also oversold, is less aligned with broader technical indicators. The stock's 50-day and 200-day moving averages are higher than its current price, and its MACD is not explicitly bearish. This divergence hints at a possible correction rather than a structural breakdown.

Fundamental Analysis: Intrinsic Value vs. Market Price

IBM: AI-Driven Growth and Debt Concerns

IBM's Q2 2025 earnings report revealed a resilient business:
- Revenue: $17.0 billion, up 8% YoY, driven by Software (+10%) and Infrastructure (+14%).
- Profitability: Gross margin improved to 58.8% (GAAP), and operating margin hit 18.8% (non-GAAP).
- Cash Flow: Free cash flow of $2.8 billion for the quarter, with full-year guidance raised to $13.5 billion.

Despite these strengths, IBM's P/E ratio of 38.11 and 12.8% discount to intrinsic value (based on DCF models) suggest undervaluation. However, its $67.7 billion debt load and 9.1% profit margin (down from 13.5% in 2024) raise concerns about leverage and margin compression.

LULU: Premium Brand with Margin Risks

LULU's fundamentals are equally compelling but come with unique risks:
- Intrinsic Value: DCF models estimate a base-case intrinsic value of $346.09, 45% above its current price of $191.40.
- Profitability: A 70/100 profitability score, driven by 20.5% gross margin and 15.2% operating margin.
- Debt: A conservative $1.71 billion debt load and 85/100 solvency score.

However, LULU faces operational strains from rapid expansion into new product lines and the MIRROR acquisition. Analysts project a 56% upside to $299.32, but risks include margin compression from rising costs and competition from direct-to-consumer brands.

Sector Positioning: Tech vs. Retail Dynamics

IBM operates in the Information Technology Services sector, where it ranks in the top 2.32% of 2,931 companies by RSI (20.22 vs. industry median of 48.65). Its AI and hybrid cloud segments, now valued at $7.5 billion in bookings, position it for long-term growth. However, the sector's -8.77% quarterly price growth reflects broader tech sector jitters.

LULU, in the Apparel/Footwear Retail sector, has a -4.55% quarterly price growth but a 2.51% monthly gain, outperforming IBM's industry. Its cult-like brand loyalty and omnichannel strategy (e.g., e-commerce, in-store experiences) support premium pricing, but its 12.68 P/E ratio suggests the market is skeptical about margin sustainability.

Short-Term Volatility vs. Long-Term Fundamentals

The oversold conditions for both stocks likely reflect short-term volatility rather than structural issues. For IBM, the RSI exhaustion and golden cross suggest a potential rebound, especially if its AI and cloud segments continue to outperform. LULU's oversold RSI and strong intrinsic value metrics indicate a correction is more probable than a collapse, particularly if its international expansion and MIRROR integration prove successful.

However, investors must weigh sector-specific risks. IBM's debt and margin pressures could delay a rebound, while LULU's operational strains and competitive landscape may cap its upside.

Risk-Rebalance Opportunities for Value Investors

For value-focused investors in Q3 2025, both IBM and LULU offer asymmetric risk-reward profiles:
- IBM is a high-conviction buy for those comfortable with its debt and margin risks. Its intrinsic value discount and AI-driven growth justify a long-term hold, with a target entry near $230–$240.
- LULU is a more defensive play, with a lower debt profile and stronger brand equity. Its 45% undervaluation and analyst price targets suggest a near-term rebound, though investors should monitor margin trends.

Conclusion: A Case for Strategic Entry

The convergence of oversold technical indicators and undervalued fundamentals in IBM and LULU creates a compelling case for value investors. While IBM's path to recovery is clouded by debt and sector volatility, its AI momentum and cash flow strength justify a strategic entry. LULU, with its stronger balance sheet and brand power, offers a more immediate rebound potential but requires caution around margin risks.

In a market where S&P 500 volatility persists, these stocks represent opportunistic buys for those willing to navigate short-term noise for long-term gains. As always, diversification and a clear exit strategy remain critical to managing risk in this environment.