As U.S. stocks plunge in recent weeks, we’ve tried in Big Stock Charts to highlight the stocks that have held up well. We’ve kept that focus for a couple of reasons.
First, it’s difficult to gain much insight from a chart that’s close to vertical. To use an example we’ve used before, many energy stocks have lost more than half of their value in a matter of sessions. Some, like major producer Apache (NYSE:APA) and Exxon Mobil (NYSE:XOM) are re-testing lows from early this century. Even long-term charts are not of much value in that context.
Second, a dose of optimism of any kind seems useful in what is now, at least as measured by the Dow Jones Industrial Average, a bear market.
Finally, there’s hope that simply looking at winners can provide some insight in what kind of stocks are holding up in this environment. It’s possible, though not definite, that similar plays that have faced bigger sell-offs might be able to play catch-up.
In that vein, Thursday’s big stock charts focus on the three of the four biggest winners so far in 2020 among large-cap stocks. (Large-cap here is defined as a market capitalization of $10 billion or more.) We’ve left one name out: Sprint (NYSE:S), the second-best performer in the category. Its rally has come due to approval of its acquisition by T-Mobile (NASDAQ:TMUS), and its stock now trades based on the equity component of that deal.
But despite the focus on winners, it’s still somewhat difficult to be optimistic. Even the few winners in 2020 appear to have real challenges ahead.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is likely the market’s most controversial stock. But even with a sharp pullback of late, it’s still been the fourth-best large-cap stock of 2020. The first of our big stock charts, however, shows that the fade could continue:
- Like TSLA itself, the chart seems to be in the eye of the beholder. Bulls can make a technical case. Shares have found support in recent sessions around where they bottomed late last month. Ignore what looks to be a “blow-off top” in mid-February and the broader trend remains sharply positive: TSLA stock still is up 258% from its 52-week low.
- But there are some bearish patterns in the chart as well. Excluding the huge gains after the fourth quarter earnings beat in late January, there seems to be a head-and-shoulders pattern that’s mostly, but not totally, played out. The aborted rally from late February lows establishes an inverted cup-and-handle, and another could be on the way if that repeats. And there seems to be a downward channel at this point. It wouldn’t be stunning from a technical perspective if the stock continued to weaken.
- At the very least, in this market it certainly could be worse. Growth stocks generally have struggled across the board. The plunge in oil prices has raised fears that cost of ownership for ICE (internal combustion engine) vehicles will get more competitive. Tesla’s plant in Shanghai was shut down. The fact that TSLA maintains such an elevated valuation could be a sign that investor confidence remains strong — or suggest that the stock has much more room to the downside.
GSX Techedu (GSX)
The best-performing large-cap year-to-date surprisingly is a Chinese stock: GSX Techedu (NYSE:GSX). The first of Thursday’s big stock charts does suggest the stock should be able to stay elevated:
- The chart is a bit in the eye of the beholder, admittedly. An investor could see a narrowing ascending wedge — a reversal pattern — as drawn on the chart above. But beginning the pattern in November, an analyst could see a broadening ascending wedge, which suggests new highs are on the way. For the most part, this remains a stock mostly in the uptrend that is hugging its 20-day moving average. There at least is not much that screams downside risk, though another reversal could test the 50DMA.
- It might seem bizarre that a Chinese stock is leading the way, but it makes much more sense than it appears. GSX Techedu is an online education company, with a particular focus on K-12 tutoring. Coronavirus fears likely are driving customers to its platform — and they won’t necessarily leave when pandemic fears subside. More broadly, as we’ve noted before, Chinese stocks have not done all even as U.S. stocks have plunged. The iShares MSCI China ETF (NASDAQ:MCHI) is about flat to where it traded in late January, while the S&P 500 is down 14%.
- Fundamentally, there’s a case for more upside. GSX grew revenue over 500% in 2019, and guided for another 300% increase in the first quarter. The stock isn’t as cheap as public data suggests (that data doesn’t appear to account for currency translation), but GSX generated about 25 cents in adjusted net income in 2019 and should drive more in 2020. Given its growth, a multiple in the range of 50x 2020 non-GAAP earnings per share is hardly prohibitive. GSX has bucked the broader trend, and could continue to do so. The question is if it will remain the exception to the rule.
Zoom Video Communications (ZM)
Zoom Video Communications (NASDAQ:ZM) is another company seemingly set to benefit from coronavirus fears. But in that context, the third of Thursday’s big stock charts does suggest at least a bit of concern:
- Support has held on more than one occasion around $105. That’s about where resistance held last summer. Shares have bounced off the 20-day moving average as well. Buyers are stepping into even relatively modest pullbacks, which seems bullish. A “golden cross” formation at the beginning of the month adds another positive indicator, even if ZM has faded of late.
- That said, the rally is losing steam at the same time broader declines are accelerating. If investors were buying ZM based on office closures leading to higher demand for its video conferencing offering, they’re not doing so as those closures actually are happening. There is a sense from the chart that the easy money has been made. Relative stable trading isn’t bad news in this market, but perhaps the days of ZM going in the opposite direction of stocks as a whole have ended.
- Meanwhile, ZM stock now, on a price-to-sales basis, is essentially the most expensive large-cap stock in the entire market. Alnylam Pharmaceuticals (NASDAQ:ALNY) is marginally more expensive, but as a biotech company isn’t really valued on near-term revenue. And so the question for ZM stock might be on which aspect of the stock investors focus. Is it the opportunity — or the valuation?
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.
