Identifying stocks to buy on the dip will always be a winning strategy for long-term investors. So you should always keep some companies on the radar to get long when stock prices become more attractive. Therefore, today’s article discusses seven stocks to buy on the dip in the winter months.
JPMorgan Chase (NYSE:JPM) strategist Marko Kolanovic recently suggested that the Covid-19 pandemic was at an “effective end” and that investors should buy the dip in sensitive cyclical stocks positioned to benefit from overall economic growth.
However, others are cautioning volatile days might be ahead. For instance, in early December, Wall Street will witness political debate and posturing on whether the nation’s debt ceiling will be increased of if default might be on the horizon.
Meanwhile, amidst surging inflation, the Fed is getting increasingly hawkish. Tapering should start in the weeks ahead followed by potential interest rate hikes. Equities might come under pressure when we get the first interest-rate hike in recent years. Finally, soaring energy prices and the current concern over the collapse of Chinese real estate developer China Evergrande Group (OTCMKTS:EGRNY) constitute additional risks.
Yet, potential declines in equity prices would also mean more opportunity to buy solid stocks at cheaper valuation levels. With that information, here are seven promising stocks to buy on the dip that would make great additions to any portfolio:
- Dollar Tree (NASDAQ:DLTR)
- International Business Machines (NYSE:IBM)
- Jazz Pharmaceuticals (NASDAQ:JAZZ)
- Omega Healthcare Investors (NYSE:OHI)
- Paysafe (NYSE:PSFE)
- Vale (NYSE:VALE)
- Zynga (NASDAQ:ZNGA)
These stocks have done well in 2021 and should continue to deliver results in 2022. All investors need to do is time their entry.
Stocks to Buy on Any Dip: Dollar Tree (DLTR)
52-week range: $84.26 — $120.37
Chesapeake, Virginia-based Dollar Tree operates discount stores in the U.S. and Canada. Its business segments include Dollar Tree and Family Dollar. The retail chain usually offers branded and private-label goods with $1 price tags.
Dollar Tree released its Q2 results in late August. Consolidated net revenue increased only 1% year-over-year (YOY) to $6.34 billion. Net income came in at $282.4 million, or $1.23 per diluted share, up from $261.5 million, or $1.10 per diluted share, in the prior-year period. Cash and equivalents ended the quarter at $767.7 million.
On the results, CEO Michael Witynski said, “Our EPS of $1.23 represented increases of 12% from the prior year’s quarter and 62% compared to the second quarter of 2019.”
Due to disruptions in the supply chain and surging inflation, Dollar Tree recently announced that it would begin selling some items for as much as $1.50. The news led to an immediate double-digit rally in DLTR stock. The retailer plans to open 500 new Dollar Tree Plus stores by the end of the fiscal year.
Dollar Tree bought back $950 million of its stock so far in fiscal 2021. Despite surging about 20% in the past month, DLTR stock is still down 5% year-to-date (YTD). The shares are trading at 16x forward earnings and less than 1x sales. Interested readers could regard a short-term decline toward $100 as a better entry point.
International Business Machines (IBM)
52-week range: $105.92 — $152.84
Dividend Yield: 5.11%
Tech giant International Business Machines issued Q3 results on October 20. After adjusting figures to compensate for the upcoming spinoff of its Kyndryl infrastructure business, IBM’s total revenue went up by 2.5%. Net income came in at $1.13 billion, or $1.25 per diluted share, down from $1.7 billion, or $1.89 per diluted share, in the prior-year quarter. The company generated adjusted free cash flow of $11.1 billion.
“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company,” CEO Arvind Krishna remarked in a press release. “We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities.”
Management has been working hard to transition the Big Blue toward a hybrid-cloud and artificial intelligence (AI) group. IBM recently announced a partnership with Apptio that aims to “help clients improve hybrid cloud technology decision-making and drive adoption of Red Hat OpenShift and IBM’s open hybrid cloud approach.”
IBM stock plunged over 10% in the few days after its Q3 results, which came up short of market expectations. It currently trades at slightly above $125, up just 1.5% YTD. With a dividend payment yielding over 5%, IBM might also appeal to income investors. Shares are trading at 10.7x forward earnings and 1.5x trailing sales.
Jazz Pharmaceuticals (JAZZ)
52-week range: $126.01 — $189.00
Dublin, Ireland-based Jazz Pharmaceuticals focuses primarily on treatments for sleeping disorders, hematology and oncology. The biopharma group announced Q2 2021 results in early August.
Revenue surged 34% YOY to $752 million. Non-GAAP adjusted net income came in at $241 million, or $3.90 per diluted share, compared to $207 million, or $3.71 per diluted share, in the previous year. Cash and equivalents ended the quarter at $891 million.
Management has been putting resources on further enhancing its pipeline, as around 40% of the revenue comes from recently launched or acquired products. Analyst believe that the cannabinoid epilepsy drug Epidiolex and the recently approved acute lymphoblastic leukemia drug Rylaze could provide further tailwinds for sales growth.
Following the quarterly announcement, CEO Bruce Cozadd remarked, “We have now executed four of five planned product launches since the beginning of 2020 and look forward to our anticipated launch of Xywav in idiopathic hypersomnia later this year, a critical step forward for these underserved patients.”
JAZZ shares hover at $145 territory, 23% below their multi-year high of $189 hit in June. They are also down 12% YTD. The stock trades at 8.2x forward earnings and 3.2x current sales, a relatively cheap valuation compared to its peers in the biopharma space.
Omega Healthcare Investors (OHI)
52-week range: $28.08 — $39.31
Dividend yield: 8.77%
Hunt Valley, Maryland-based Omega Healthcare is a healthcare facility real estate investment trust (REIT) focused on nursing home facilities. This REIT holds close to 1,000 properties across the U.S. and U.K.
Omega Healthcare announced Q2 results in early August. Total revenue was flat YOY at $257 million. Net income came in at $87 million or 36 cents per common share, down from $102 million a year ago. Adjusted funds from operations (FFO) was $207 million, or 85 cents per common share, compared to $190 million, or 81 cents per common share, for the prior-year quarter. Cash and equivalents ended the quarter at $101 million.
CEO Taylor Pickett remarked, “The second quarter was a positive one for the Company, with strong second quarter Adjusted FFO and FAD, as well as, continued solid rent collections.”
OHI has maintained a dividend rate at 67 cents per share for the past eight quarters, despite occupancy problems and financial problems of its operating partners. It currently offers a lucrative 8.8% dividend yield.
The stock hovers at $30 territory, more than 20% down from its 52-week high of $39.31 from late April. It’s also down 16% YTD. OHI shares are trading at 7.7x trailing sales.
Paysafe (PSFE)
52-week range: $6.90 — $15.65
London, U.K.-based Paysafe is a payments platform that operates in various vertical markets, including payment processing, digital wallets, iGaming, and eCash.
PFSE issued Q2 results in mid-August. Revenue went up by 13% YOY to $384 million. Net income came in at $6.6 million, or 4 cents loss per diluted share, compared to a net loss of $15.9 million, or 13 cents loss per diluted share, in the prior-year quarter. In addition, the company generated free cash flow of $54.6 million. Cash and equivalents ended the period at $1.5 billion.
CEO Philip McHugh remarked, “We are pleased with the continued momentum Paysafe exhibited over the second quarter with impressive growth and several key wins across iGaming and other attractive digital commerce verticals, including crypto.”
iGaming separates Paysafe from its peers in the digital payment space, as the platform’s digital wallets can be used for online gambling. Paysafe recently said that it will expand its partnership with FOX Bet, offering digital wallet and electronic cash products for the sports betting platform. The company also announced acquisitions of PagoEfectivo and SafetyPay, leading open banking solutions in Latin America.
PSFE stock hovers around $8 territory, trading almost half its 52-week high of $15.65 in late March. It is down 46% YTD. Shares trade around 40x forward earnings and 4x sales.
Vale (VALE)
52-week range: $10.38 — $23.18
Dividend Yield: 9.58%
Rio De Janeiro, Brazil-based Vale is the world’s largest producer of iron ore and vital raw materials for steelmaking. The bulk materials division, mainly iron ore and iron ore pellets, accounts for most of its earnings, but Vale is also the world’s second largest nickel producer.
Vale released Q2 results in late July. Net operating revenue jumped 122% YOY to $16.7 billion. Net income skyrocketed to $7.6 billion, or $1.49 per diluted share, up from $995 million, or 19 cents per diluted share, in the prior-year quarter. Free cash flow for the period stood at $6.5 billion. Cash and equivalents ended the quarter at $13.7 billion.
On the metrics, CEO Eduardo Bartolomeo cited, “As we proceed with the resumption of our iron ore capacity, we also eliminated six upstream dams and advanced consistently on our ESG agenda.”
Iron ore prices have recently declined as China lifted trade barriers for the steel industry. As a result, VALE stock has come under pressure. However, analysts expect the demand for iron ore to keep going up in the long run. The transition to electric vehicles (EVs) is another significant tailwind, lifting the demand for iron ore as well as other commodities such as nickel.
VALE shares hover slightly above $13, trading 40% lower than the 52-week high in June. They are down 19% YTD. The stock also supports a generous dividend yield of 9.6%. VALE shares look like a bargain, trading at just 3.8x forward earnings and 1.3x sales.
Zynga (ZNGA)
52-week range: $7.14 — $12.32
San Francisco, California-based Zynga is a mobile video game developer that generates revenue via mobile game downloads, advertising services, and in-game sales of virtual goods. Zynga announced Q2 results in early August.
Revenue increased 59% YOY to $720 million. Net income came in at $28 million, or 2 cents per diluted share, compared to a net loss of $150 million, or 16 cents loss per diluted share, in the prior-year period. Cash and equivalents ended the quarter at $1.5 billion.
CEO Frank Gibeau cited, “We delivered strong Q2 results ahead of guidance, including our best-ever Q2 revenue of $720 million, up 59% year-over-year, and record Q2 bookings of $712 million, an increase of 37% year-over-year.”
The global mobile gaming market is expected to increase at a compound annual growth rate (CAGR) of 11.5% over 2020-2027. Zynga recently purchased Chartboost, a leading advertising platform with 700 million monthly users. It also announced the acquisition of StarLark, a mobile game developer from China. These acquisitions should significantly contribute to Zynga’s top-line growth in the near term.
ZNGA stock hit a 52-week low of $7.14 in October. It currently hovers around $7.5, down 25% YTD. ZNGA stock trades at 27x forward earnings and 3.3x sales. Interested readers could find value around these levels.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
