The unwind in growth stocks accelerated last week, and we’re getting another ugly drop as I type this Wednesday morning. With traders fleeing just about any ticker attached to the growth factor, it’s an understandable area to avoid right now.
Value, cyclicals, precious metals, and other inflation-sensitive securities are where the action is at.
But as I was sifting through the rubble in my list of beaten-down growth stocks, three companies caught my eye. Their long-term trends have yet to turn up, but the short-term price action is warming. And they all share the same catalyst that brought buyers to the yard – earnings. One of the silver linings to stock getting demolished in the weeks ahead of these quarterly events is it makes it easier for an upside surprise.
In the case of the following candidates, earnings may well have put a bottom in their sinking share prices:
Let’s take a closer look at their bottoming attempts and build a trade worthy of consideration.
Growth Stocks: DoorDash (DASH)
DoorDash never really found its footing following last year’s IPO. We saw one or two sharp rallies, but an uptrend never really developed. The response to its first earnings announcement in February didn’t help. But its second report was a different story. On Friday, DASH ripped 22% on monster volume. The rally pulled prices back above the 50-day and 20-day moving averages in a single bound.
The magnitude of the move, coupled with the breadth of participation, suggests the low is in. We may need a few days of consolidation to digest the gain, but make no mistake, the next breakout or retracement is a buy.
I like using bull puts to bet last week’s lows hold.
The Trade: Sell the June $110/$105 bull put for 70 cents.
The risk is $4.30, and the reward is 70 cents.
3D Systems (DDD)
DDD has been so volatile this year it may as well be a cryptocurrency. In the past five months, it surged from $10 to $56 only to fall back to $17. If you think the giveback was excessive, then today’s idea should be of interest. Like, DASH, it was an earnings report that finally spelled the bottom for DDD. The better-than-expected numbers delivered a single session rally of 35%! As is typical during such an outsized jump, volume exploded.
A bull flag formed following the rally, and it triggered the next advance on Monday. Given the newfound strength, I’m viewing this morning’s down gap as a buying opportunity.
Implied volatility is extremely high because of the stock’s volatile nature. That makes spreads more desirable than a single call purchase.
The Trade: Buy the Aug $25/$35 bull call for $2.40.
The risk is $2.40, and the reward is $7.60.
Growth Stocks: Palantir (PLTR)
The final pick for today’s growth stocks to buy is Palantir. The momentum darling is down 50% since its peak but had found significant support at $21. Last week saw prices finally break the floor directly in front of the May 11 quarterly report. Fortunately, the numbers beat expectations, and bulls rushed back in.
The bullish engulfing candle that formed in response to the announcement was convincing. And, we’ve seen nothing but constructive price action since. What’s more, the rebound pulled prices back above the $21 support zone to create a false breakout. Any bears who shorted the break are now losing money and liable to get squeezed if PLTR moves higher.
If you’re willing to bet the stock stays above $18 for the next month, then consider the following naked put play.
The Trade: Sell the June $18 put for 42 cents.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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