Most often, investment discussions focus on long-term prospects. Today we will look at stocks to buy for the long term but that are also great short-term traders. The three companies have excellent fundamentals but even better shorter-term ranges. This makes them predictable with limited downside.
They say it’s risky to turn a trade into an investment. In this case it is not, because I would want to own for the long term if there is a hiccup now.
It’s important to know the prism within which the stocks are trading. The indices are breaking records every week, so they are susceptible to disappointments. Investor expectations have never been higher, so it will be easy to rattle them. Case in point, we learned last that politicians have finally approved a second stimulus package. Markets fell on the headline, so it’s likely that the bulls are tired. I don’t think it’s a problem because even if they are the dips will be shallow.
So far, investors have bought every correction. This won’t change for as long as the Central Banks safety nets are out in full force. Last week the U.S. Fed Chair Powell reaffirmed his concern over the economy. He is not about to let his foot off the pedal anytime soon. I can’t imagine the macroeconomic conditions changing to where mega-cap P&L’s collapse. Any weakness in these great companies will be temporary.
Here are today’s companies in focus:
Stocks to Buy: Apple (AAPL)
The first stock today is the king of all stocks — Apple. Its fundamentals are beyond reproach and its business outlook is phenomenal. It has a devoted following who don’t mind paying a huge premium. Even on Wall Street, value is in the eye of the beholder. AAPL stock has recently experienced a shift up to where its trailing price-to-earnings now near 40 — double that of 2019.
So far, investors have not balked yet, and the reason is the change in sales mix from products to services. In my opinion it is still an iPhone company, but for now that still works for it. Long gone are the days of flashy headlines of the next new thing a la Steve Jobs. The new era under Tim Cook is different, and only time will tell if it’s better.
Meanwhile Apple stock has tremendously strong support above $122 and a cement floor into $118 per share. This opens an opportunity to profit from that through options. Investors who are willing to buy shares there can sell puts at those levels and generate income out of nothing. The worst that could happen is that the investor will end up owning shares 5% lower. They would break even closer to a 10% correction. That’s a bad scenario I can tolerate.
Conversely it has resistance above $128, so that’s a spot to fade the rally. Traders will be able to rinse and repeat the swing inside the range until one side or the other fails. Then, which ever side it is, Apple will overshoot in that direction. Active traders can also swing the stock within those lines without using options. They can buy it on dips into these supports and try to scalp a 5% bounce.
Usually active trading requires strict stop-loss orders. In this case, I won’t bother with one. This is a stock I’d want to own long term, so it’s not a disaster.
Palantir (PLTR)
Palantir is not a new company, but it is new to Wall Street. Its investors are incredible fans, so it is headed higher in the long term. It serves the private sector and is in cahoots with the U.S. government. Its expertise is in using artificial intelligence (AI) to make decisions on the fly. As the global digital revolution blossoms, the demand on PLTR services will explode. I bet owners of the stock today will be very profitable years from now.
After the IPO, it consolidated for about a month and then broke out like a bat out of heck. It rallied 200% before failing. Since then, it has given back just enough to consolidate and build a better base. This is a necessary evil for the bulls so they can resume their rally. Meanwhile, there are two shorter-term ranges in play for the short and medium term. Active traders have been successful buying dips into $25 per share and fading the rally as it approached $28. This will continue until one of the edges fails and then Palantir stock will have momentum in that direction.
There’s even a secondary range between $22 and $30.50 per share. The process will repeat there as well.
The long-term prospects look great. The fundamentals are strong already and improving. Management has earned a lot of respect already. Hopefully they won’t disappoint us next year, but there are no signs of it yet.
They say machines are doing most of the trading, which makes these ranges self-fulfilling prophecies. In this case, it doesn’t require deep knowledge of charting skills — just simple observation of support and resistance lines.
Boeing (BA)
There are few legal monopolies in the U.S., and I contend that Boeing is one. Technically it’s a global duopoly, but in reality it’s not. Boeing has only one competitor on the planet, and for all intents and purposes, it might as well have none. Both of them are stretched to their limits with throughput. Their customers have no options but to order from them. This is an ideal business setup that almost broke last year.
During 2019, Boeing suffered tremendous losses, mostly from mismanagement issues. This year came the pandemic blow that almost took it out completely. BA stock fell off a cliff down 80% from the $420 high to $89 in March. First, they almost committed corporate suicide through their handling of two tragedies involving their 737 Max model. Then the virus almost finished them us. It took until now that they finally received clearance to fly it again. This will bring tremendous relief to their P&L.
The healing has started, so dips are once again buying opportunities. The BA stock bears should be on the defense. It’s hard to beat a business model where the customer has nowhere else to go. The right thing to do was to buy Boeing stock at the March lows. The exact moment was when President Donald Trump promised they’d help Boeing survive the March crisis. Since then the stock has swung wildly but a closer look at the chart shows clear ranges.
Depending on time frames, any entry near $200 per share should make for an excellent long-term investment. In any case, in the long term, Boeing stock will be above $300 likely by next summer. I remain a big fan of their future prospects just from the perspective of supply and demand. Airlines will need new planes and the supply can only come from a couple companies. I flew several times this year, and in all cases it was a brand new 737 albeit not the max model. But I bet my next flight may be on one.
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.
