Although tech stocks are often a big topic on Wall Street, some of them haven’t been getting as much love and attention as others lately. It’s either that or the attention has been predominantly negative. But despite the press, these three abandoned tech stocks are set to make a comeback.
They’ve become compelling stocks to buy now because of their returning strength and they now present low-risk entries.
Some believe that sector rotation is the lifeblood of a bull market. When the backdrop for equities is healthy you’ll see money flow from leading sectors to lagging ones. This allows overbought areas to pause, digest gains and prepare for future advances. And it buoys up unloved areas, bringing them back into the fold.
That’s the case for each of these promising tech stocks to invest in now. Let’s take a closer look at each.
Forgotten Tech Stocks to Buy: Netflix (NFLX)
Netflix (NASDAQ:NFLX) shares have been volatile since birth. This year’s whack ushered NFLX stock into a full-fledged bear market, driving it 35% off this year’s highs. If you look at the depths of the descent versus last year’s all-time highs, the damage rises to a 40% thrashing.
So has Netflix fallen out of favor? Undoubtedly!
But evidence that buyers are returning has cropped up over the past two months. First, the stock gapped higher on earnings. Second, even though the up open was rapidly rejected, a higher pivot low eventually formed, reflecting buyers’ willingness to step in at a higher price than before. Third, when Disney (NYSE:DIS) screamed higher last week on the Disney+ mania, Netflix shares fell heavily. But the downdraft didn’t last. The snapback is pushing into its third day this morning, creating a breakout above key resistance near $300.
With the pop, NFLX stock has now completed an ascending triangle bottoming pattern and is in an uptrend.
Trade Suggestion: Buy the Jan $310/$320 bull call spread for around $3.80.
Square (NYSE:SQ) is another fallen tech stock that finds itself miles away from record highs. At its September lows, SQ stock was 46% off last year’s peak, abandoned in bear country.
But its action post-earnings is encouraging. The initial surge launched SQ above key resistance at $64.50 amid huge accumulation. And though the breakout bid ultimately failed, the subsequent support test did not. I find the rapid return to the highs very promising. This morning, we’re seeing another attempt at cracking the ceiling.
If it succeeds, a run toward $70 by Christmas could be in the cards. With implied volatility sitting at the lowest levels of the year, long calls and call spreads are a lay-up idea here.
Trade Suggestion: Buy the Jan $65/$70 bull call spread for around $1.90.
Facebook (NASDAQ:FB) rounds out the list and some may dispute its inclusion. FB stock certainly didn’t fall out of favor nearly as aggressively as NFLX and SQ. But it really hasn’t enjoyed near as much upside as say, Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) lately.
So, in that sense, it is an underperformer.
What caught my eye was its initial surge above $190 resistance on solid earnings results. Sellers struck quickly on the morning of the gap, but the test of the rising 20-day moving average held (with a nice accumulation day to boot) and FB has since returned to overhead resistance.
Today’s drop signals buyers might need some time to build strength for a breakout, but there’s no doubt FB is an attractive play over $196.
Trade Suggestion: Once resistance finally falls, consider buying Jan bull call spreads such as the $200/$205.
As of this writing, Tyler Craig held bullish options positions in SQ and NFLX. For a free trial to the best trading community on the planet and Tyler’s current home, click here!