The U.S. is bracing to receive the first doses of Pfizer’s (NYSE:PFE) novel coronavirus vaccine today. The Food and Drug Administration finally approved it for use in record time even though it felt like it took forever. The U.K. already beat us to it and the rest of the world is sure to follow. This should help businesses in due time. The vaccine my help people quickly, but it will take months for it to start healing the economies. The rates of infection are scaring governments into tight rules. I live in California and our governor locked us down and even instituted a curfew. Despite these challenges there still are good stocks to buy going into 2021.
There are better times ahead and that’s how Wall Street sees it. How else could we explain how indices are making record highs every week? The faith that investors have in the Fed is winning over every other worry for now. Right or wrong, it’s doing the trick. The U.S. government has flooded the system with cash to prop up the economy. They are still trying for more because every one is calling for another stimulus for about $1 trillion.
These are astonishing numbers and quite frankly scare me. The bailout from the greatest financial crash in 2008 known as TARP was only $700. It ended up being $200 billion less, and it also turned a huge profit for the government. This time it’s different and a complete experiment. For now and for the purposes of stock prices, the bulls are in complete control. Consequently today we can discuss three stocks to buy that should have bounces in their near futures. They are:
Stocks to Buy: Adobe (ADBE)
ADBE stock is never cheap and that has been acceptable for investors. Lately it has seen some selling, mainly because of expectations that went out of whack. The whole world got caught up in a whirlwind of chasing internet stocks. The frenzy resembled that of the dot com bubble, only this time the companies in question are more legitimate. The part that was nuts was the veracity with which investors bought stocks. Adobe is now 12% below its high and it’s still up 45% on the year. It rallied 100% off the March lows without any rest. This is its first sideways stint and therein lies the opportunity.
It’s only normal for ADBE stock to find sellers so they can build a better base. This is just normal price action and nothing is broken with the company’s business model. It just reported earnings and the results were fine. The bulls needed a rest and this shakes out the weak hands so they can transfer ownership to stronger ones.
The next rally should start from above the base at $460 per share. The opportunity is to ride it from there up to $500, where this is a big potential opportunity. If price exceeds it, then it would invite big momentum buyers for another $40 from there. That scenario has the opportunity to bring new highs.
Adobe also qualifies as a long-term investment because the future should be bright. The digital revolution just got into hyper mode, so there will be demand on its businesses for years to come. Its valuation could be better, but that has always been the case with Adobe’s stock. Besides, it’s inline with the rest of the cohort.
Docusign (DOCU)
Like the other two stocks to buy on this list, DOCU stock is trading inside a channel. It is currently toward the lower end of it, while the descending trend line is making the action tight. A move is coming and since this is a bullish market, my guess is that it will breakout. By now, investors have had time to digest the price action from the earnings report. Management is executing well, so in a rising tide, Docusign will do well.
The base below it is strong and has proven itself to be reliable. This puts the DOCU stock bears at a disadvantage. With a tailwind, the bulls will prevail and all they need is a small push to start their momentum. If you’re long DOCU stock, I’d suggest stay in it for at least two weeks or until it hits the first target near $250. There, both sides are likely to battle it out hard to decide if they can start the second leg to $290 per share.
So far we’ve only discussed the technical opportunity, but the stock is on solid fundamental footing as well. The company’s business model lends itself well to a world that finally has committed to doing everything remotely. It is not cheap, but that’s the case with most of its competitors. It has a price-to-sales ratio of 30x, which indicates that the buyers expect a lot of growth from it. It’s up to Docusign’s management not to disappoint them.
Zoom (ZM)
The pandemic destroyed millions of businesses across the globe. But for a special segment of companies it gave their businesses a shot of adrenaline. Zoom is one of those lucky ones, but as they say, “you make your own luck.” The company built a slick product to connect people digitally across the planet. The quarantine and the pandemic played perfectly into that business model. Suddenly everyone found themselves in need of such a service. Zoom’s services filled that need perfectly.
The user metrics have exploded, but so has the zoom stock price. I had beef with it at its highs, but now I see a trading opportunity. This stock has been trading inside a wide range and it’s now towards the lower end of it. Active traders may be able to catch a swing trade up from here into the $460 area. However, I would be careful riding it down below $370. Then the trade may turn into and investment and that’s not the intent here.
Fundamentally, while I love the service I am not a fan of the valuation. No, I’m not talking about the 280x price-to-earnings ratio. Even though this is more than twice that of Amazon’s (NASDAQ:AMZN), it’s not my concern now. What usually hurts a stock price after a rally is a disappointment against the expectations. A few weeks ago, ZM stock owners had too much hope. They had priced in more than 105 years worth of sales. It has since dropped 40%, and now its price-to-sales is down to 60x. That is by no means cheap, but it’s definitely better than it was before. Consider that Amazon’s is only 4.5x and Snowflake (NYSE:SNOW) is 217x. I offered these two extremes for you to judge where Zoom sits.
My concern for ZM stock in 2021 is owning it into the summer. This is when the company will start reporting over the incredible sales of this year that include the pandemic bump. Until then, traders can try to profit from a bullish swing towards the upper end of the trading range. Those who love the stock for an investment should just own it for the long term and test their thesis. But it’s a momentum stock, so in the meantime, it offers a lot of trading opportunities like this.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
