Markets struggled on Monday, but that’s near record levels still for most indices. The earnings season is still at full tilt so there is no shortage of headlines. The Federal Reserve will release its minutes form the last meeting later this week. It is sure to spark sentiment trading as investors can’t have enough of it. The QE has been here for years, and losing could be a scary proposition. Exercising some caution up here is sane. With all of that in mind, there are a few top stock trades during this mess.
Top Stock Trades for Tomorrow No. 1: Fastly (FSLY)
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As with most of our picks today, Fastly (NYSE:FSLY) stock price action doesn’t match its P&L. The financial stats that management is delivering doesn’t warrant this punishment. FSLY stock is down 70% since last October, yet the financial results are booming.
Revenues tripled in four years and they are not bleeding cash. They are almost at positive cash flow from operations. Meanwhile, they still lose money and that’s okay as long as they deliver revenue growth. Most importantly is that the price-sales ratio (P/S) is now just under 15, which is a far cry from 50. The drop from February made it so that the owners now have more realistic expectations.
That said, the chart also supports that notion. The August $33.80 lows should hold. These have been extremely pivotal for two years. FSLY stock failed there in September of 2019. Then the bulls broke out from there in May of 2020. Here we are testing it again and the assumption is that it will hold. Thus, the bottoming process is alive and it makes for a decent swing trade opportunity.
Top Stock Trades for Tomorrow No. 2: Sofi (SOFI)
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There is an implosion effect ravaging many meme stocks. SoFi (NASDAQ:SOFI) is one down 4.7% today, and 29% since the beginning of June. But some of the tickers like this one actually have fundamentals to back up the stock. This is not the case of a frothy business idea waiting to come to market. SOFI has been around for a decade. Therefore, investors will learn to respect better on bad days.
Meanwhile, there are lines to trade this week. The first important line to hold in this deluge is the low from May 13. The stock bounced hard there and rallied almost 70%. This is not to guarantee a repeat performance now, but it’s important that the bulls defend it well.
Losing it would open the conversation of another 10% to 13% drop from there. Gut says that the bulls will do what is necessary to hold. Keep in mind that its first day of trading high was $13.94, so these levels have history. It’s probably too late to panic now for those long. It’s better effort searching for short term entries that could turn into long-term bets.
Top Stock Trades for Tomorrow No. 3: Teladoc (TDOC)
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Teladoc (NYSE:TDOC) got a huge boost from the pandemic. It was understandable to chase the golden goose at the time. Now, it’s the complete opposite as TDOC stock can’t seem to string enough green candles together to stop this disaster.
It is down 52% from the February high, but here is where it gets interesting. The fight is now between it being a meme-ish stock and a solid business going forward. I side with the latter because the proof is in the pudding.
If I am right, then it’s worth the best that the earnings low will hold. It is interesting that it also held May 13. Panicking out now is wrong, as is going all in. I envision this a good starting point for swing traders and long term investors.
The charts support the technical thesis and the P&L the business prospects. Management tripled revenues in three years. And after this long slide, the stock price now carries very little froth. The P/S ratio now is 11.5, which is a third of what it was in February. The remaining owners are most likely strong hands.
Top Stock Trades for Tomorrow No. 4: Clover Health (CLOV)
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In keeping with the meme theme, our last pick today is Clover Health (NASDAQ:CLOV). This one is not short on controversy from the attention that Chamath Palihapitiya brought. Among the headlines, investors lost track of the growing business.
Consequently, CLOV stock is also on the skids for months. It is down 60% from its astonishing spike in June. That doesn’t matter short term because the fight is more finite now. The bulls are trying to hold a floor near $7.68 per share. It held there on July 19, and a bit higher since then on several tests.
The assumption is that it will hold again for a base. Fast traders can you that but with tight stops. Losing the support would open the door for new selling. The downside can extend another 10%. Investors can use this effort to initiate starter positions. Leaving room to add makes most sense now.
My worry would be from the extrinsic effect that falling indices may have on CLOV stock. Long term, there is enough revenue growth to refute the “it’s a fraud” arguments floating around.
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.
