The roller coaster in U.S. stocks continues. Tuesday’s bounce was mostly wiped out by yet another decline on Wednesday. At one point, as measured by the Dow Jones Industrial Average, all of the gains accumulated since the January 2017 inauguration of Donald Trump had been erased.
It could get worse. Overnight futures project another steep decline. The Federal Reserve is pledging to backstop money market funds, but investors have shrugged off past moves. Talks at the federal level for a stimulus package don’t seem to be driving any confidence, either.
But as we noted in yesterday’s Big Stock Charts, there is one reason for optimism. Investors are starting to pick winners, if gingerly so. That trend did continue on Wednesday. Thursday’s big stock charts focus on three names that showed some strength in response.
All three stocks shouldn’t necessarily see enormous impacts from the coronavirus, yet saw big sell-offs regardless. For investors hoping that overnight losses will reverse, these names could be buying targets on Thursday and beyond.
Akamai Technologies (AKAM)
Content delivery giant Akamai Technologies (NASDAQ:AKAM) would seem an odd target for a sell-off even in this bear market. The first of Thursday’s big stock charts shows that investors have figured that out:
- After dipping to a nine-month low, AKAM stock has rallied nicely. Wednesday’s gain pushed the stock back above support, which looks re-affirmed. AKAM now has cleared moving averages, and seems to have a path to last month’s highs.
- That might sound overly optimistic in this market. But there is a fundamental case for more upside as well. Homebound consumers should ramp up their streaming video activity, increasing traffic. Akamai often sees pricing decline over time, but should be able to hold the line in an environment where reliability is prized. While most companies are going to see near-term profit declines, Akamai may well receive a short-term boost.
- Meanwhile, it’s not as if Akamai stock is expensive. Shares still trade at less than 19x 2020 consensus EPS estimates. Given that analysts are looking for roughly 9% growth next year after a 10% increase this year, that multiple hardly seems onerous. Until recently, smaller rivals Limelight Networks (NASDAQ:LLNW) and Cloudflare (NYSE:NET) had rallied sharply; there’s still room for increased optimism toward AKAM and its space.
- But as trading in Akamai stock just last week shows, market pressure can still be a factor. LLNW and NET have pulled back significantly in recent weeks, and there may be another wave of indiscriminate selling ahead for the sector and the market. AKAM can rally, but after the bounce some investors might think it wise to find other oversold names.
Zynga (NASDAQ:ZNGA) is another company who should receive a short-term boost from the coronavirus shutdown. As the second of our big stock charts shows, it too has found support and the technical picture suggests more upside ahead:
- ZNGA stock still has some work to do, with the 200-day moving average presenting resistance on Wednesday. Shares actually slid back to that level, and saw a bearish test of the 50DMA last week. But going back to last summer, investors have stepped in repeatedly below $6. A broadening ascending wedge does suggest room for a reversal back above $7.
- To some extent, the relative strength of the business model has been appreciated by the market. Of stocks with a market capitalization over $2 billion, incredibly less than 6% have risen year-to-date. With a 1.3% gain, ZNGA is one of those stocks.
- But the company also posted a strong fourth quarter report that contained a well-received outlook for 2020. In that context, the company has earned its gains so far this year. I’ve been somewhat skeptical toward the stock in the past, but with strong growth expected this year and a possible short-term boost on the way, the rally in Zynga stock should continue.
United States Cellular (USM)
After a textbook decline, United States Cellular (NYSE:USM) has posted an impressive rally. As the third of Thursday’s big stock charts shows, the stock now is at an inflection point:
- Support finally gave way last month. Fourth quarter results were the catalyst, but the dip wasn’t a surprise. A descending triangle pattern suggested increasing selling pressure. When the stock finally gave way, it fell hard: USM stock touched a 16-year low before bouncing over 20% during the last few sessions.
- That bounce makes some sense. In this day and age, cellular providers are basically utilities. That sector soared in trading on Tuesday. Larger rivals AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) have also declined, albeit at a slower pace than the market as a whole.
Going forward, the technical risk is that $32 has flipped from support to resistance. The fundamental risk is that USM stock should be cheap to begin with. The company still is struggling with market share against better-scaled competitors. Shares traded sideways for years before a 2018 rally. The sell-off may have gone too far, but as with the market as a whole, that doesn’t necessarily mean all of those losses will be recovered immediately.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.