Wall Street just launched another earnings season and this one is getting off to a wild start. Just look at today’s moves in Twitter (NYSE:TWTR) and Tesla (NASDAQ:TSLA). And there are already plenty of beaten-down stocks to trade from earlier in the week. Today I will discuss Beyond Meat (NASDAQ:BYND), Boeing (NYSE:BA) and Salesforce (NYSE:CRM). All three have been in the news lately — but the champion in racking up headlines is BA. All three were also Wall Street darlings who have fallen deeply out of favor lately.
To set the scene, stocks are near their all-time highs so the environment is already lending BYND, BA and CRM stock indirect help. There has been little change in the bullish macroeconomic conditions for over a year. This is not the same as saying that there aren’t problems. In fact, BA is in the direct line of fire of the U.S.-China trade war. The other two, although they are not directly impacted by China, have other plagues.
Stocks to Trade: Beyond Meat (BYND)
The concept of a meat substitute that looks, smells and tastes like real meat is a viable one. Millions of people are already plant-based eaters, and millions more would convert if given a nearly identical alternative. The reason for eating plant-based diets can be health or humanitarianism — and the claims on either are legitimate. There is no wrong answer. This is all to say that there is no need to justify the existence of BYND’s products and services. It is only a matter of time before they become more ubiquitous.
Having said that, BYND stock is astronomically expensive. The stock sells at nearly 37 times its sales so there is no justifying that part. Those who buy the stock here expect either a monster takeover or a sharp increase in deliveries. Either case is a hopium bet that will need time and a lot of luck.
Since its July highs, BYND stock is down almost 60%, yet year-to-date it is still up 54%. So even though it has fallen on hard times, that doesn’t mean that the run is done. It doesn’t help that it is also suffering in sympathy from Wall Street’s dissatisfaction with frothy IPOs. Investors have little patience and are now looking to sell bloated tickers with thin thesis. BYND fits the profile. This came to a head with the botched IPO of WeWork.
There is good news for BYND stock fans. It has now fallen into support from the June consolidation period and has completely filled that earnings gap. Furthermore, this level is also close to the measured move of the bearish pattern that triggered at the $133 per share neckline. This means there could be some relief for the bulls in the form of support.
Boeing (BA)
For as long as I remember BA stock had been the one that investors buy on every dip without question. But lately the headlines have been very unfriendly. The events that led to this were so tragic that the world is not yet ready to let BA stock off the hook. So for now, the bulls need patience. This effect on the stock is similar to the problem that Chipotle (NYSE:CMG) had with its food illnesses. Investors have to temper their enthusiasm when trading BA stock for a while. It needs time to heal.
Fundamentally, BA has a 39 price-to-earning ratio which is not cheap. But it only sells at two times its sales. And considering that it is in a duopoly, there is little doubt over its prosperity for decades to come. So value is not an issue, which leaves timing as the only variable.
Those who invest for the long term would probably just buy the shares over time. But technically, BA stock has proven that the lows of this year are solid supports. This gives the bulls confidence in their positions. Since it is still reeling from headlines, I would favor selling puts below the support. This would leave some room for error just in case there is another shoe to drop. Buy-and-hope works over time for BA, but it will need a catalyst headline.
Salesforce (CRM)
CRM is the original cloud company. It set the standard that all companies are now chasing. The new smart thing to do is use the cloud and set up a subscription business model. CRM did that a decade ago. CRM stock always moves fast and long. So when it’s falling, it looks like it is headed into oblivion. Recently, it has suffered from the malaise in the cloud names like Adobe (NASDAQ:ADBE) for example. Traders fall in and out of love with these stocks depending on what’s in the headlines, so it is a temporary effect.
Fundamentally, these cloud stocks are not cheap. Wall Street still allows for high valuations in that sector. CRM stock sports a 123 price-to-earnings ratio and sells at nine time its sales. So it is safe to say that at these altitudes, there is always some fat to trim if the scenario arises.
To that point, CRM recently suffered a 15% correction from its April highs. And it has so far proven that it has support above $138 per share. But if for whatever reason this doesn’t hold, then the bears will have the help of a bearish pattern to target the Christmas lows near $118 per share. So far there is no such imminent scenario, but depending on what happens during this earnings season, one could quickly develop.
Conversely, if the bulls use this recent base as a stepping stone, they can remount a rally to test the resistance at $158 per share. There is a problem from the Oct. 15 reversal bar at $152.80. If and when CRM stock gets back there it will be a tough wall to breach.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
