The equity markets are suffering from 1,000 cuts from a number of headlines, although most of these don’t actually change the fundamentals of the companies profit-and-loss statements. Nevertheless, they are inflammatory in nature and raised the levels of worry among traders. For the time being, they are rattling investor confidence on Wall Street. Thus, this is the perfect time to search for bargain stocks to buy. Why? Because when people are nervous, they toss the good with the bad indiscriminately.
Overall, the S&P 500 has corrected 2% since September. We have to keep in mind that this bull market is old and has a steep incline. As a result, the indices are vulnerable to sharper corrections than normal. What has already happened feels painful, but in reality, things can get much worse. Nevertheless, I still favor the upside scenario continuing into the middle of next year. For that reason, I am on the hunt for opportunities with stocks to buy that are close to support levels.
Straight Forward Method
My formula is simple because I stick to quality companies with proven track records. When we are unsure about the entire stock market, it’s not a time to deploy risk in frothy ideas. Investors would do well to avoid startup companies regardless of potential. A 20% correction would drag down strong companies like Apple (NASDAQ:AAPL), let alone a pre-production one like Lucid (NASDAQ:LCID).
Therefore, let’s take a closer look at three stocks to buy that fit the profile. All have strong fundamentals and long-term track records. The small -cap sector so far has been stable, which could be a good sign overall. Since it represents a basket of 2,000 stocks, it’s a better gauge of trader sentiment. Heavyweights in the NASDAQ index for example skew the actual opinion. The mathematical influence of a few massive tickers may tell a lie about the collective.
Moreover, some of the leading scary headlines are political in nature. They are wreaking havoc with investor psyche because the politicians negotiate through news flashes. We all know they will eventually raise the debt limit for example, so it’s not a real issue. Yet, they make drastic and dramatic statements as part of scare tactics. Most companies incomes are not going to suffer much if we shut down the government a few hours. Besides, they have done it before without any serious economic repercussions.
The current conditions are still solid because of the trillions of dollars in stimulus money still circulating. Besides the Federal Reserve is still our friend and is keeping rates low for years. We will also have the QE through the middle of next year. Contrary to popular belief, the taper is a process not a one day event. I bet good odds that the indices will make new highs before we correct 20%. For this reason, I am optimistic about the opportunities in the stocks to buy we offer here. They are:
Now, let’s dive in and take a closer look at each one.
Stocks To Buy: Intel (INTC)
Intel is one of the three leading chip companies that provide the brains for computers. The post-pandemic world is now in a panic to get digital everywhere. Therefore, the demand for computers and peripherals should accelerate for months.
Intel has a seat on a triangular table of computing brain power suppliers. Its spot is safe for years. However, INTC stock is not showing the enthusiasm yet to reflect this scenario. It has severely lagged its two main competitors Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). These two hog the headlines, while Intel is still the behemoth among them.
Don’t take my word for it? Just check the financial statements. Intel’s gross profit is six and three times bigger than AMD and Nvidia, respectively. The onus is on management to bring investor focus back to its stock. There is hope that this is happening, but it’s a slow moving drift.
Technically, the stock is establishing a solid base above $50 per share. The bulls can use this to mount a solid effort into next year. I don’t anticipate a sharp super-spike, but a steady rally nonetheless. I say this because the short-term price action has tightened into a point. Usually when that happens, energy builds, and it needs to explode. So, while we await to learn the direction, betting on long-term upside in INTC stock makes sense.
Investors in BIIB stock need to have a chiropractor on retainer. I say this because the price action this last year has been violent to make the strongest of stomachs queasy. It spiked 70% in June only to give the whole thing up. Therein lies today’s opportunity from the technical perspective.
When a quality stock falls back into a solid base it should find support. Moreover this has happened before in the fall of last year, so it’s becoming a habit. Back then, the spike was 50% but the crash reversion from it came quicker. BIIB stock then consolidated for month below $290 per share.
Fundamentally, the stock has modest valuation with a trailing price-earnings ratio (P/E) of 21.8 and a price-sales ratio (P/S) of 3.7. The trend in revenues took a step back in the last 12 months, so that’s a concern but not panic. Net income also is now running at half the rate of last year, so management needs to show progress.
The current price levels for BIIB stock have been pivotal since 2013. I suspect that the bulls will want to fight for them, which will create support. This sector is prone to headlines and they cut both ways. Therefore, I always stick a speculative label to my trading biotech stocks. Size matters, and the trade in this should not be huge just in case.
Stocks To Buy: Health Care Select Sector SPDR Fund (XLV)
Our third pick is a close relative to Biogen. XLV is a basket of healthcare companies like Johnson & Johnson (NYSE:JNJ), United Health (NYSE:UNH) and Pfizer (NYSE:PFE). These three stocks account for about 22% of the entire exchange-traded fund (ETF). These are ancient companies with proven track records, so they lend quality to the collective.
In spite of that, XLV has also fallen on hard times of late. It has corrected 6% since the August double-top high it made in September. That’s somewhat commensurate with what has happened with the S&P 500. Meaning that there is nothing intrinsically bad about it other than pure price action.
The good news is that the XLV has fallen into a decent support zone. I expect it to find footing near $125 per share, at least for a while. Therefore, this also fits in the speculative basket of stocks because of the nature of the business. This sector is also prone to headlines, and the top 10 companies are heavyweights that could influence it.
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.