Last week, the bulls made a bold statement on Wall street. The Nasdaq broke out finally after weeks of hesitation. The S&P 500 also started its own nice weekly breakout. The laggards are the small caps and the Dow Jones. Both of them are sitting just below their own necklines, so there’s hope for them this week. Within that scenario, there are hot stocks to buy into the second half of 2021.
The underlying danger is the Federal Reserve. For years, they have been the main reason why the stock market has been rallying. They have been pouring trillions into into the system. This is more liquidity than the world has ever seen before. The amounts are massive, maybe too big to fully comprehend. The approach of current hyper-economic stimulus is an experiment. My bet that is going to bring about some challenging times ahead.
Simply put, I worry about the bill that will come due. Someone has to pay for all the stuff.
For now, it’s a very bullish tailwind and it could be coming to an end. If that is the case then further upside is not going to be as easy. Therein lies the potential downside pressure on all stocks. That’s the caveat to today’s ideas. Whatever bullish thesis we may have today has to work within the overall stock market prism.
For now, the bulls have the upper hand and they’ve been buying every dip. The bears are on their heels and any attempt to short the market has delivered extreme losses. It’s good idea to stay cautious and keep trade size small. Don’t go all-in on any stock, no matter how good the scenario looks. Stocks cannot rally in a falling market, they eventually all follow the collective.
Caution is still the better way to go, especially when we are near all-time highs.
The threes hot stocks to buy are:
Hot Stocks: Teladoc Health (TDOC)
TDOC stock is going into resistance, but from a decent base. The bulls may have enough momentum to overcome selling pressure that could come soon. Technically this opportunity has its challenges short term. Eventually, the real reward comes from the fundamental one that exists.
TDOC stock has fallen too much from its highs. Yes, the rally earlier this year was too exuberant, but the bears also overdid it on the downside. Teladoc sits almost 50% below the highs, yet the business prospects have not changed much. This is a viable long-term business and will have better days ahead. The financial metric trends show strong positive growth. There is no reason to doubt that this will continue into next year.
The pandemic scare was the proof of concept Teladoc needed for investors. There is an absolute need for their services in emergencies. The surge in user metrics was massive last year. And these habits won’t all disappear as Covid-19 wanes. It is important that management capitalizes on this to drive future growth.
So far, I have no reason to doubt that prospect, so I remain in the buy-the-dip camp. This one is a good one with a tight stop. Below current prices lies a potential nasty scenario. I don’t believe it will happen unless the markets crash.
TDOC stock has more upside opportunity for those willing to wait. I am not alone on this since the average price target from analysts is $229 per share.
United Airline (UAL)
The reopening process is going well, and that suits hospitality and leisure stocks. Airlines are also happy with that and trying to get back on their feet. If you’ve been investing for a long time then you would know that the industry stock have had a checkered history. They’ve always found ways to mess things up. Going into 2020 they seemed like they were on track to begin shedding that stigma, but then the pandemic hit.
This shut down almost crushed the companies. They immediately went into survival mode and borrowed as much money as they could to just survive the crisis. The air traffic statistics from the TSA are showing tremendous improvements versus last year’s numbers. But in reality they are still down 30% from 2019.
That is a giant headwind for UAL stock and others like it. There is a long way to go, but there’s definitely a light at the end of the tunnel.
Fundamentally the companies are still in shambles, but at least now they have revenues to help them rebuild. For now, they have strong cash positions to operate without financial blight. But the news is worsening a bit so there are wrinkles. Case in point, American Airlines (NASDAQ:AAL) headlines about cancelling flights due to labor shortages. There is more of it this week, and that’s going into a busy travel season. There might be more to this story, so it is a short-term risk.
So it does have its challenges, but the stock price has recovered well. Technically UAL stock sits above a healthy support zone. The stock has corrected 12% in the last month, so a lot of froth fell out of it. This is a good thing because it shakes out weak hands. The pivot zone below should serve as a base for another potential swing up towards $60 for share. There would lie another opportunity to take it even further.
I worry about the odds of this just because of extrinsic factors. The stock market is at its highs, and if it trips, then it would take United down with it. Nevertheless this is a technical opportunity that sits inside a long-term fundamental recovery rally. Still, of the three today, this is my least favorite choice.
Hot Stocks: Carnival (CCL)
The scenario for CCL is similar to the airlines. The only difference is that this segment did not carry the stigma of bad managements. Moreover fans of the stock are just as excited about that as the fans of cruises themselves. Those who cruise tend to do it for life, and the same goes for the stock investors. I am not one of those — I have tried it, but boats are not my thing. However, I have family and friend who will always remain loyal to it and venture out every year.
This passion is the fuel for the upside in this case, and it hasn’t even started back up yet! Therefore the opportunity is still just brewing and fundamentally available. In addition, CCL stock has the same technical opportunity as the airlines. Meaning it just lost 13% of its value in two months, and it, too, is falling into a pivotal zone. More often than not, these provide support. In this case, they could be the base for a rally back up to $31 per share.
If that happens, then the opportunity would be to break out from the June highs. Doing so will bring about a fresh new rally with another 15% upside from there. This scenario seems too far to chase but it is doable. Cruises have been off the menu for so long that any signs of revenue stream recovery will bring about big bids.
CCL stock has been doing this well with virtually nothing coming in. Year-to-date it is up twice as much as the S&P 500. Imagine what would happen with even a partial revenue recovery in the months to come.
There is a caveat here concerning headline risk. Even before the pandemic, we’ve always feared potential infections on ships. Now they are more real and on the forefront. The smallest of outbreak headline of any kind will likely gather more media attention than before 2020. These are potential headline potholes that would cause CCL stock and others like it grief. I would use those weaknesses to accumulate shares.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.