After a couple of weeks of jitters, the stock market pulled out a positive week last week. This was surprising given that the Federal Reserve event delivered some bad news. It was good economic news, but these markets are addicts to the medicine, which in this case is the QE. The rally is a sign that risk appetite is still here. If that’s the case, then there are stocks to buy that are down on their luck lately.
Today we concentrate on quality companies with strong P&Ls, which have hit the skids. Preferably these stocks to buy don’t have glaring operational issues. Ideally, I like to pick ones that fell on analyst opinions, not on deteriorating results. Frankly, the list is long because of how nervous investors have become.
The expert opinions about where equities are going this year are divergent. I don’t even count the perma-bears that have always announced doom. Of course, they are correct once a decade, but in between they are wrong all the way. Somewhere between them and the Reddit Apes lies the reasonable opinion.
The logic I subscribe to now is that companies are just too healthy to have a depression. A correction is possible, but not anymore likely than another breakout to new highs. Therefore, it only makes sense to go with the flow and repeat what has worked.
Since 2018, investors on Wall Street have bought the dip. We just had a 5% hiccup, so they might as well just buy this one, too. There is always room for a Black Swan, so whatever investors decide to do, they should be moderate with it.
The thing about forming tops, it is a process. This makes it possible to sneak up on us. The way the bull trap happens is by not paying attention to the resistance after the bounce. Stocks that bounced last week will find resistance on the way back up. If they fail to hold last week’s lows, they will trigger bearish patterns for another 5% to 7% from those lows. And then the reins could transfer into the sellers’ hands.
Investors need to do their own homework and exercise their own logic to further increase their chances at success. The three stocks to buy today are:
Stocks to Buy: Activision Blizzard (ATVI)
Activision stock is down 28% from the February highs. More recently things took a turn for the worse just before the earnings report. The stock fell harshly at the end of July. That second leg alone accounts for about 17% of the total yearly loss. The good news for those who own shares is that ATVI stock is going into prior support.
Last November, the buyers stepped in full force to take it to its highs with a 40% rally. It is back at the base, and from prior breakouts often comes forward support. It is imperative that it finds footing this week, and even rallies a bit. The bears are temporarily in control of the stock. However, overall this is still a bullish stock but under short-term duress.
The zone around $72 per share has served has been pivotal for three years. This is where ATVI stock where into its 2018 correction, and where it broke out of it two years later. Revisiting the neckline for footing is part of normal price action. As long as the equity markets remain healthy, this one will find we’ll have better days ahead.
This earns it a spot among our list of stocks to buy for the second half of the year. This also qualifies it as a long-term opportunity. Management has done a good job running the company, as is evident from its financial results. They managed to more than double their operating income, so they earned the benefit of the doubt. This negative price action does not reflect badly on the progress of the business.
Our second stock pick today is not as in bad shape as the first. But it’s definitely more exciting to trade. FB stock last week fell sharply on some really strange headlines. My knee-jerk reaction is to buy the dip, and those who did made a quick buck. There might be more in store especially if markets do well this week and next.
The sellers had their reasons last week, but in reality none impacted the P&L of the company. Time and again panicking out of FB stock on negative headlines has been wrong. The bottom line is that they are so big that it’s not going to die from one headline.
Moreover, the U.S. represents only 7% of its total user base. Yes, the advertisers have U.S. dollars, but U.S. topics of conversations are not necessarily threats to the business. The perfect example was Cambridge Analytica from three years ago. These most recent fears are just not likely to be any worse.
It’s strange to find experts still swimming upstream with this one. It’s almost as bad as what happened with Amazon (NASDAQ:AMZN) for a decade. The income statement for Facebook stock speaks for itself. Total revenues more than doubled in four years. More importantly, net income almost tripled for the same period of time. These are outstanding results, yet they keep trying to deny them.
The headline that could kill such momentum must be monumental and emphatic. Analyst opinions, privacy issues, understating statistics are not it. Having said, last week’s dip presented a short-term trading opportunity not an all-in situation. The stock is still way too close to its all-time high to warrant a full-blown long term investment. It may very well turn out to be one, but to my taste I prefer it the lower.
Stocks to Buy: iShares Silver Trust (SLV)
Our third pick today has nothing to do for the first two. Heck, it’s not even a company. Our third member of today’s stocks to buy into is a metal. For SLV, the thesis is simple and has nothing to do with fundamentals. SLV is near a prior bottom, which should provide a base for the next rally.
This ETF moves closely with gold. They are both under assault from a rising U.S. dollar. They are good investment vehicles, where there is no need to study fundamentals. I primarily use charts to trade them. Chatter of an aggressive tapering process could strengthen the dollar further. Therefore, the weakness in SLV could sustain the downside pressure a bit longer.
This is why I consider this a trading opportunity. Last summer, the buyers mounted rallies from about these levels. They might be ready to do it again. If it doesn’t come to fruition, I would simply stop out of it for a partial loss.
Individual investors have different goals and time frames. Therefore, there isn’t one entry point to suit all. I mentioned earlier that the stocks to buy on dips will face resistance this week. It is imperative that SLV not succumb and then lose this base. Doing that would invite sellers for to hunt bearish patterns that could lead to 7% to 12% debacles.
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.