The stock market these days is like a baby. It throws a fit at the slightest of discomfort. Case in point what transpired yesterday around the Federal Reserve FOMC event. The experts exaggerated its importance as if we were expecting them to change course. This is despite the fact that Fed chair Jerome Powell constantly assured the country otherwise. The Fed is absolutely and without a doubt committed to reflating the economy. Investors can find stocks to buy on dips.
There are no nuances about that, because they said they will do all it takes to keep this boulder moving. Yet, the questions from the press conference yesterday were puzzling. The reporters were pushing for even more assurances. The same question came out in several different ways. How long will they stay dovish? The real answer is for as long as it takes. This, for now, delays the second coming of the Taper Tantrum of 2013. Therefore, my assumption is that the buyers remain in charge of the stock market. Dips in mega-cap stocks are opportunities to buy.
Today we concentrate on three that have not seen as much love as they deserve. Successful investing means taking risks when others are not willing. This may seem contrarian but it’s not by design. Sometimes that’s just how it happens when we look for opportunities ahead of the herd.
Because we are near all-time highs, investors should temper their enthusiasm a bit. The last correction in the Nasdaq was harsh and it would be a waste if we ignore it. It served as an example of how ready traders are to hit the sell buttons. They almost did it again this week.
Wednesday, the indices price action ended strong. The CBOE Volatility Index (VIX) closed below 20 for the first time in over a year. This is not to say that the risk is over. It just says that we shouldn’t anticipate change in behavior on Wall Street. The three stocks today are:
Stocks to Buy: Facebook (FB)
Facebook stock had a good day Wednesday closing up 1.7%. That was more than double the indices and better than other mega-cap stocks. Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) were red. The point is that it is trying to build momentum.
Also on Wednesday, markets had a snap-back rally from red to close green. Apparently there were fears that the Fed would change course – they didn’t. If the bulls remain this much in charge, FB stock has room to run. What makes it exciting is that these are levels that were failures multiple times already. Breaking out from such prior resistance zones invites the momentum buyers.
For the next few days, the FB bulls have an imminent spike at their hands. All they need to do is trigger it. Moreover, this is a very healthy company in spite of media rhetoric. The disruption risk from Apple is not as catastrophic as the experts speculate. It’s hard to mess up the potential of 3 billion active users. They can sell gum and be successful, and to suggest otherwise is ridiculous.
Facebook stock also has spent months consolidating sideways in a wide range. This opportunity is at the upper ends of the range. With the proper setting, the bulls can break through and rally to $310 or higher. This makes the opportunity appealing to many styles of trading. The fast traders have a hard trigger line, and the investors have a swing-trade entry. Long term, this is a stock I would hold for capital appreciation. It has a 29 P/E and a 9 price-to-sales. Both of these are in line, so valuation is not a reason to doubt it.
Our second stock of the day has an opportunistic setup. Yesterday, Teladoc stock fell off a cliff because of a headline from Amazon (NASDAQ:AMZN). Investors sold TDOC stock in fear that the competition from the gorilla disruptor would hurt the business. This is nonsense because if Amazon wants in, it confirms that TDOC opportunity is real.
This is a big world and there’s enough room for more than one company to prosper. The tele-health industry is young, so they are far from saturation. TDOC stock soared last year because they were busier than they could handle. Therein lies the proof that there’s room for more than one provider. There were reports of eight-hour hold times. The competition should push the company to do better.
Fundamentally, Teladoc is not cheap. But this is not a worry because they are growing really fast. Their annual revenue run-rate is more than a $1 billion. That’s substantial enough that they could grow into their evaluation. Their price-to-sales metric is comparable to Tesla (NASDAQ:TSLA). It’s not cheap but it’s definitely not unrealistic.
So far management has not given investors any reason to doubt their competency. Therefore, I can assume that they continue to execute well on plans. The trends of using remote services got a huge boost from the pandemic. This is not a fad, and it will continue for decades. The ramp for the next couple of years is exponential. This is all to say that the Wednesday knee-jerk sell-off offers short-term entry opportunities.
Technically, TDOC stock has proven support at $174 per share. The bulls have defended it four times already, and before that it was resistance. In cases like these, my assumption is that it will hold one more time. But if it doesn’t, I would stop out of being long. Falling below support could trigger a bearish pattern with big downside targets. I would not want to find out how deep. Those who are in it for the long term as an investment need not worry about it. All they have to do is not take a full-size position all at once.
Gold Spider ETF (GLD)
In the opening remarks, I said we’re looking for stocks to buy. This one isn’t even a company. The GLD is the exchange-traded fund that tracks the price of gold. For more than six months investors have been selling it incessantly and without relief. Every semblance of upside potential faced tremendous selling. The GLD stock bulls had the opportunity to hold an establish a floor at $166.
Then like clockwork the sellers showed up and smacked it below 166 dollars per share. This makes that level the one to watch for the next week. If the GLD can overcome it, they can then chip away at the edges of this incredible bearish channel. It won’t be easy and it doesn’t look obvious.
There is a level of anticipation which I don’t usually like. Buying upside hopium at this stage seems like an “odds are” type of trade. I prefer having an actual actionable trigger line to chase, and I don’t have it yet. However, I can start getting long by selling put spreads in the GLD for May at current price. This would be like getting long the stock but leaving some room for error.
Usually I make a fundamental argument for my trades. In this case it’s very straightforward. People love gold and they want it. What creates the value is the fact that it’s hard to get and getting even more rare. Bitcoin is stealing a lot of the headlines, but this is the original non-fiat asset. Gold has value only because people say so. It serves no other purpose.
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.