Monday’s big stock charts arrive after a difficult week. Hopes for a rally in U.S. stocks seem dashed by yet another decline on Friday: major indices all fell at least 3.8%. The S&P 500 finished the week down 15%, closing at a three-year low.
What’s particularly concerning is that stocks closed at the lows on Friday. With futures signaling another decline on Monday, the equity market may not have reached a bottom yet.
The hope, however, is that it’s getting close. Monday’s big stock charts feature three names that could provide some optimism on that front.
All three stocks have found — or at least are trying to find — support. Each has a case for seeing at least some resilience to the short-term disruption facing the world economy. If investors finally are going to step into equities for good, these are three stocks that might lead the way.
3 Big Stock Charts for Monday: American Tower (AMT)
Cellular tower owner American Tower (NYSE:AMT) is a somewhat surprising victim of the recent sell-off. And as the first of Monday’s big stock charts shows, that could continue:
- At least relative to the chart, there’s not much reason to suggest the declines are over yet. Support above $200 gave way in a hurry and on heavy volume. The same was true of moving averages on the way down. Reading charts in this environment obviously is an inexact science, but we’ve seen plenty of similar charts in the last few weeks presage more downside.
- That said, it’s fair to wonder why AMT stock has struggled so significantly during this sell-off. The value of the company’s worldwide portfolio shouldn’t change all that much based on short-term factors. In fact, as Verizon Communications (NYSE:VZ) noted last week, demand for bandwidth has skyrocketed. The rollout of 5G (fifth-generation) wireless should continue, even if supply chain backups slow its pace. Nothing really has changed for AMT except the stock price.
- But AMT highlights one potential underlying cause of this sell-off: stocks simply were far too expensive in February. Even after the plunge, American Tower stock is far from cheap, at about 23x the midpoint of 2020 guidance for AFFO (adjusted funds from operations, a common profitability measure for real estate investment trusts like AMT). A forward dividend yield in the range of 2% is low by REIT standards as well. There’s a case that the sell-off is being driven by a fundamental re-rating of equities, and AMT might support that case.
DocuSign (NASDAQ:DOCU) managed to buck last week’s broad market sell-off. As a result, the second of our big stock charts suggests some modest optimism:
- Simply finding a rally last week is a positive. Among stocks with a market capitalization, less than 8% finished the week green. Meanwhile, DOCU found support around $67 and just above the 200-day moving average. Next week presents an important test of the 50DMA, but this is a stock showing some near-term strength.
- There’s a short-term case for more upside as well. DOCU has gained 7.5% so far this year; barely 2% of mid-cap or larger stocks have done better. But there are only a few companies who might gain a long-term benefit from this crisis, and DocuSign would be one. Short-term usage of the company’s products might drive longer-term adoption. Other businesses with similar cases, like Zoom Video Technologies (NASDAQ:ZM) and Chewy (NYSE:CHWY), have done even better year-to-date.
- Valuation is a concern, with DOCU trading at almost 100x 2021 earnings estimates. Here, too, one wonders if the market might not have another leg down. There should be some modest long-term benefit for DocuSign, but an enormous amount of growth was, and remains, priced into DocuSign stock. With the 50DMA looming, DOCU might be an interesting test case for the market next week.
The Stars Group (TSG)
In theory, The Stars Group (NASDAQ:TSG) should see at least a neutral effect from the current crisis — and maybe even a benefit. The third of Monday’s big stock charts shows that investors have figured that out:
- Stars is merging with United Kingdom-based Flutter Entertainment (OTCMKTS:PDYPY) in an all-stock deal. Both companies will see short-term pressure on their respective sports betting businesses. But Stars’ dominant PokerStars platform may receive a bump from homebound customers. The same is true of both firms’ iGaming businesses. And in the U.S., sports betting legalization may pick up speed in the second half of this year, as suddenly strapped state governments look for new sources of revenue.
- Valuation is a concern. So is a recession. Higher unemployment in the U.S., the U.K, and Australia could pressure results going forward.
- Still, TSG seems like an intriguing, if aggressive, play near the bottom. Investors liked the merger when it was announced. Long-term trends still seem to be in the company’s favor. Gambling stocks as a whole have been crushed in this sell-off, but saw some buying on Thursday and Friday. It remains to be seen if this is a false bottom for Stars Group stock, but there’s at least a chance the decline to $12 simply went too far.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He is long shares of Chewy, and has no positions in any other securities mentioned.