3 Stocks to Buy From Catastrophic Price Action
Markets stumbled on Wednesday, but not really. The small caps fell 1.3%, but the S&P 500 was barely negative 0.3%. In reality, Wednesday was just another day but with pockets of weaknesses. Among them, there were stocks to buy off their major support levels. This makes today’s thesis be somewhat technical but not entirely.
First, let’s establish that caution is necessary at these altitudes. The score would have been much worse if not for Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA). They were up more than 2% each, propping up their indices.
Even though the bulls are in charge on Wall Street, accidents do happen.
The list of stocks to buy is growing quickly, but investors need to be quite selective. It wouldn’t be smart to blindly choose stocks to buy on large dips just for the sake of it. It is best to narrow the pool of candidates when markets are at all-time highs. The criterion for quality companies should be as high as possible. Otherwise, the old adage rings true that picking bottoms will get you stinky fingers.
Tech Holds Up
Tech stocks held up better on Wednesday at the expense of the small-caps. This rotation back and forth has been in effect for more than a year. This is a bullish symptom because investors seem not willing to be net sellers. If they sell one stock group, it’s because they want to buy another. Otherwise and if they were truly afraid, they would sell them all.
That hasn’t happened often this year and the last time was in September. The bears at the time almost declared victory that the bull market was over. But the buyers stepped back in, and the indices made new highs. That is why the assumption must remain that the bulls are still in charge on Wall Street.
The bearish scenario from here can only happen if we have a Black Swan event. Otherwise, there’s just too much money in this economy to expect company profits to dwindle. We are in a busy earning season and the reports have been blockbusters. Yes, even the stocks that fell 20% have delivered strong growth year-over-year.
Nvidia (NASDAQ:NVDA) reported 50% sales growth last night. Moderna (NASDAQ:MRNA) grew sales a whopping 3,000%, and Teladoc (NYSE:TDOC) 80%. However, both their stocks fell on the headlines. They continue to struggle, so they also are stocks to buy on dips. The three stocks to buy today are:
In this bullish market there will be red days. Statistically the pain yesterday wasn’t that significant on the surface, but investors suffered. Therefore, we should continue to exercise caution as if there is a crash just around the corner. Up here, it is very easy to hit a pothole and have a surprise sharp correction. Falling even 1% will feel like a skydive.
Stocks to Buy: Zillow (ZG)
Rarely do we see a company shift strategy as drastically as Zillow recently did. Three years ago they raised eyebrows when they announced a home-buying strategy. Last month they abruptly ended it and fessed up to be holding a $300 million bag of losses.
Usually I am leery of companies who drastically morph their businesses. But in this case I will give them the benefit of the doubt. I can assume that management is wise enough to realize their mistake early. Fixing it, as scary as it seems, is most likely wiser than trying to slog it out. Just like in trading, booking your losses early is a proper course of action.
Fundamentally, the demand for Zillow services remains strong. In fact, the digital trend improves its offerings as more people take to the web. Revenues are growing fast as the company is five times larger than in 2017. The growth rate was already fast before the 2018 home-buying strategy started. Shedding that strategy here is likely a net benefit especially to the bottom line.
After an incredible 1,000% rally from the pandemic bottom, ZG stock lost 70% of its value. Near $60 per share, its price-to-sales is down to 3. For a growth company, that is dirt cheap but with a caveat. Me giving management the benefit of the doubt is a pocket of risk. Meaning, I am cautiously optimistic, so I don’t go all in. More importantly, I would consider this a trade, so I would not average down in it on weakness.
Jumia (JMIA)
They call Jumia the Amazon (NASDAQ:AMZN) of Africa. I take issue with that because its growth rate pales in comparison. I think it deserves its own label of a company expanding into a young market. The African e-commerce stock fell 80% from its 2021 highs. So today’s bet is that the November 2020 support base will hold.
Nothing has changed in the fundamental thesis. The company still faces the same opportunities and the progress has been slower than ideal. Evidence is that investors dropped it 20% on its earnings headline. In this case revenues shrunk a bit, which is concerning. Therefore, I acknowledge that this is a technical bet that investors will buy it here.
There isn’t much help from the experts on Wall Street for this one. According the Yahoo Finance only eight analysts track it and they rate is as a “hold.” Therefore, for stocks to buy, I consider this a speculative technical bet with hard stops. If JMIA falls below $11.60, the thesis breaks down. That was last November’s base for the 500% rally. I would not want to find out what lies beneath it this time around.
Stocks to Buy: Invitae Corporation (NVTA)
The global technical progress is accelerating toward the digital revolution. The pace hastened last year after the pandemic. This is a perfect playground for companies like Invitae. Therefore, in the long term, NVTA stock should do well.
The opportunity is that investors are not showing this now. After a 700% rally from the pandemic low, NVTA fell 65%. Clearly the investors are nervous and that’s where today’s bet lies. In the long term, I see the upside potential that this company can have. Management agrees because they reported a revenue increase this year of 65%. Nevertheless, the stock fell 20% on the news.
Expectations are likely the cause of this disappointment. That’s my favorite reason to scoop up opportunities. I always side with the facts over opinions, and NVTA here is one of them. The charts also offer their own reasons to add NVTA to the list of stocks to buy.
In June of 2020, the stock gapped up and rallied 225%. This correction brings it back to that same neckline. Often, this brings about buyers and translates into the stock finding support.
The services that Invitae offers for individuals and doctors are priceless. Eventually, genetic information will be the base of all of medical interactions with our doctors. They are here laying the ground work. Among stocks to buy, this is a trade but one that I could easily turn it into an investment.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
