First order of business is to define “loser stocks” because it sounds derogatory. I don’t mean to ruffle feathers. I’m merely looking for buy opportunities in stocks that have fallen more than 25% of late. The list is growing and it’s top heavy with four-letter, young tickers.
It’s getting laborious to find easy entry opportunities into stocks. The indices refuse to rest and investors are piling into equities despite of all the challenges. If investors sell a segment, they simply rotate into another. They’re doing just that if you look at what’s happening between the Nasdaq Composite and small cap stocks.
With all of that in mind, let’s take a look at three loser stocks to buy into the summer. By definition these opportunities are speculative. The price action is bearish and buying them now means forecasting a turnaround in the future. That means we’re catching falling knives here. And when the risk is this high, investors should keep the size relatively small. Making mistakes is part of investing as long as they’re not huge.
Considering stocks that are on the skids means purposely putting our hands in the path of blades. We must accept the danger that comes with it. These will not be easy trades and they are definitely not for the faint of heart. Adding to the risk factor here, the S&P 500 is ripe for a pullback. If that happens, it would ruin any progress these loser stocks might have. Finally, May is typically a weak season for equities. I don’t like to give into “meme” trading, but there is a tag line: “Sell in May and go away.” It’s a real thing to consider, so traders should temper all upside bets going into it.
Loser Stocks to Buy: Hyliion (HYLN)
This is a controversial stock that I have avoided for a while, but I understand the attraction to it. The first reason for the recent attraction/controversy in HYLN stock is that it’s a SPAC. The second is that its fans are amazingly loyal. This makes it a touchy subject, so I will tread lightly. Almost all SPAC stocks have similarly horrendous looking charts. They have all but given up all the progress they made out of the gate.
This comment is independent of their prowess into their own ventures. But for now, right or wrong the investors lost interest. The lack of revenues makes their stocks temporarily unattractive. Therefore, the stock price is entirely from faith in future successes. There are very little tangible talking points at the moment.
Last summer, the SPAC craze was at its peak and investors were buying them blindly. Now they can’t even sustain bids long enough to establish a bottom. They keep setting lower-lows and lower-highs, yet the diehard fans are adding to their positions. Today’s call does not apply to someone already in deep trouble with it. If you are not long it already, then you could consider a small starter position.
I recently did a few videos on HYLN stock and the last one got me into a heap of trouble. The comment section got lively and cuss words flew from all sides. My only point was that the breakdown in the stock started at $18 per share. The target of that was in the single digits. It is now close enough to my target, hence my post today.
The company promises a lot, but has yet to deliver its Hypertruck ERX. Investors will need to hear about milestones soon. Management will have the chance to do that within two weeks.
The coronavirus pandemic gave online retail companies a huge boost in 2020. Because of the lockdowns, the whole world had no choice but to use their services. CHWY tripled its cash flow from operations and almost doubled its revenues. The trend was already strong in 2019, and the 2020 crisis fueled its continued success.
These new habits that shoppers have developed are not a fad. They may taper a little this year, but they will stick. It’s too hard to just quit these habits. Large food bags and litter boxes are clunky, so why not order them online? And since you’re on the website, why not buy the rest of your pet’s needs there too? Customers of Chewy love it and they frequently turn into free “advertisers” for the company as a result.
Despite the strong trends, CHWY stock is more than 30% off its highs. I realize that investors tend to overshoot before they come back to their senses. But in this case, they hit a major pivot level from last summer. Those tend to be solid footing for a base. Last August CHWY spiked 25%, but failed to hold it. That marked a top for 84 days before the bulls took it out with force.
This correction fell back into it. So far, $75 per share is holding strong. It is making its sixth weekly wick, meaning it is defending it vigorously. My bet today is that it will hold enough to serve as a base. The swing by the end of the summer could bring Chewy back to $100 per share.
Loser Stocks to Buy: Blink (BLNK)
BLNK stock is another member of the loser stocks gang. It has fallen off a cliff since its January highs. The company is smaller than my usual stocks, but the market could be huge. The electric vehicle movement’s threat to unseat the internal combustion engine (ICE) has legs. If this movement succeeds, there will be demand for about 75 million vehicles per year. These vehicles will need to “fill up” somewhere.
Charging stations will be the gas stations of the future. Currently, the world only produces about 3.2 million plug-in EVs. Tesla (NASDAQ:TSLA) set the standard and all other manufacturers are in hot pursuit. It’s only a matter of time before demand for charging solutions explodes.
Blink’s opportunity is real. It is a tiny company now, but it has the right perspective to succeed. It has two sets of clients: consumers on one side and businesses on the other. It already has 180,000 registered members and 23,000 stations. This is a healthy base from which it can grow.
Speaking from personal experience, I found no service centers near me. That’s part of the long-term bullish thesis. I live in southern California where it’s the land of Tesla vehicles. Therefore, Blink’s expansion into areas like mine is a large part of its future potential. Meanwhile, BLNK stock is terribly expensive, so value won’t help stop the price slide. If the stock sets a lower low this week, it’s going to $24 next.
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.