Weakness has cropped up in a handful of stocks that have been holding up well during the global pandemic. And I think it presents a golden opportunity to purchase at lower prices. Though there are many leading stocks slipping over the past few days, I’m unveiling my top three stocks to buy.
The novel coronavirus has torpedoed a number of companies, but some have found themselves benefiting from the fallout. Though today’s selections call different industries home, they’ve all benefited from Covid-19 to one degree or another.
And, unless you think this week’s hit is the beginning of a more ominous rollover, it should be viewed as a chance to deploy bullish-leaning trades into the following three stocks.
Let’s take a look at the charts of each and identify which options strategies you can use to profit.
3 Coronavirus Stocks to Buy Into Weakness: Walmart (WMT)
Short of one or two brief feints lower, Walmart stock has spent the past two months holding steady or rising. It’s been a bastion of strength and defensive investors have flocked.
I can think of multiple trends arising due to the coronavirus that Walmart is well-positioned to capitalize on — like hoarding. Or how about all the shuttered restaurants, forcing consumers to stock up on groceries to cook at home.
Walmart stock is always a top pick during an economic downturn due to its stable business model and low beta. But it seems like the current recession is tailor-made for the company.
The past two days have seen heavy selling pressure for WMT on the heels of an analyst downgrade, citing increasing margin pressures and its “stretched” stock price.
From a charting perspective, the stock is returning to a previous breakout area near $121. I think there’s a good chance the old ceiling becomes a new floor. It’s paid to be a buyer into weakness for Walmart for the past few years, and I see zero reasons why this time is any different.
I’m willing to respect the strength of the pullback by recommending a less-bullish type of bet.
The Trade: Sell the June $110/$105 bull put spread for around 55 cents.
Eli Lilly (LLY)
Though it’s taken a back seat during this week’s sector rotation, healthcare has hosted some of the best-performing stocks to buy in April. Eli Lilly just notched a new record high and has since put in a perfect four-day retracement. LLY stock boasts a rising 20-day, 50-day, and 200-day moving average and confirms that buyers are in complete control across all time frames.
Volume during the retreat was subdued, suggesting garden variety profit taking over a distribution-laced bear raid. Last week’s earnings report preceded the jump to all-time highs, so you know investors liked the numbers.
Since implied volatility is down to the 23rd percentile of its one-year range, premiums are cheap, and long options plays are the way to go. If you think LLY can make a push toward $170 over the next six weeks, then this trade will deliver.
The Trade: Buy the June $160/$170 bull call spread for around $2.61
Dominos Pizza (DPZ)
The coronavirus has done little in slowing demand for pizza. So says the price of Dominos Pizza stock, which finds itself a stone’s throw from another record. We’ve seen slight profit-taking this week after earnings, but it’s been minimal, and DPZ was hot as a pistol before the report and thus deserving of a cool-down.
If anything, the pullback makes the stock even more tempting because it’s created a lower-risk entry at the rising 20-day moving average. The rich price tag of $360 makes the stock a prime target for options. It allows traders to build a much cheaper and lower risk trade to speculate on further upside.
Implied volatility is down big time since the earnings report, so like LLY, long premium plays are probably the way to go here. If you think a push to $400 over the summer is in the cards, then the following spread offers a huge payout.
The Trade: Buy the July $390/$400 bull call spread for around $2.90. DPZ options are illiquid, so limit orders are a must here.
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