A founding concept of successful investing is to give yourself an edge. That comes from doing homework and finding stocks to buy that have lost their luster. An important part of it is to focus on companies with good sustainable fundamentals. These are not new concepts. The likes of Warren Buffett have been preaching them for decades.
In this post-pandemic Wall Street, it’s easy to forget, and instead concentrate on stocks that are hogging the headlines. Today we represent three stocks to buy now when attention is on others. Another important part of winning with stocks in the long run is to find moderation. It’s easy to get overzealous and jump in with both feet.
This is not the time to do this regardless of how much I like the stocks to buy now. The stock market is literally breaking records as we speak. This is never a good time to load up long equities to the hilt. Our goal is to find dips to buy in these specific companies, but retain cautious optimism.
The Fed Didn’t Break the Model
The macroeconomic conditions still favor more upside in equities. Consensus is starting to develop that the Federal Reserve is our enemy now. In reality, the QE will continue well into next year. The only thing they did is start infusing less money into the system. That was the taper that they announced last week. The process will continue into next year.
And they are far from raising rates even though the conversation may start soon among the pundits.
In any case, the companies in focus today should do well even into a tightening cycle from the Fed. Their stocks might suffer sporadically, but the profit-and-loss statements are still bulletproof.
It is very important to pick stocks to buy that have strong fundamentals now. If the markets were to correct, the bids for frothy stocks would disappear. Those are not stocks to buy now for a long-term investment. They might make for attractive trading opportunities, but that is not our goal today.
The three stocks to buy on dips are:
Stocks to Buy: Paypal (PYPL)
I’ve written about catching the falling knife in PayPal stock before. While I did not nail the bottoms every time, I’ve had more successes than misses. Today’s attempt will require high tolerance for risk. PYPL stock looks like a falling knife and it’s going into earnings. The scorecard will be strong but that won’t guarantee a positive reaction.
These days, investors are focusing on estimates more than actual hard facts. A headline came out recently of a rumor of them buying Pinterest (NYSE:PINS). Investors hated that idea and they expressed it by selling the stock down 18%. At these levels, even though it does not look like this found a bottom, it is attractive.
PYPL is consequently part of the stocks to buy on dips, but not all in. There is a possibility that after they report their earnings, they will take another leg lower. I am comfortable in stating that there is strong support at within 7%. There is also a decent chance that it could spike in relief that they did not announce another buyout idea.
Those who know options have ways they can participate now and leave room for error. The conservative types should wait until after the earnings if they cannot withstand the overnight headline risk.
Fundamentally, this is a good company and there’s nothing wrong with it. They almost doubled their revenues in four years without creating bloat. Its price-to-sales is 11 which is in line with mega-cap tech stocks.
Our second of the three stocks to buy today is a PYPL competitor. Everything I said for PYPL applies here on Square, maybe even better. This is the company that has been setting the trend in financial technology (fintech). It has blazed the trails and the rest are trying to catch up. Even the old dogs like Visa (NYSE:V) and MasterCard (NYSE:MA) are trying to learn a few tricks from it.
SQ stock has also fallen through its earnings report. There is no doubt that the results were strong, but once again it is perception that matters short term. Investors commit the most errors when they let emotions drive the short-term price action. This is at the heart of finding stocks to buy on dips.
Mistakes by other investors lead to opportunities for smarter money. Once again, I cannot promise that there won’t be lower entry points, therefore investors should temper their enthusiasm. However, I am confident that if the stock market is higher later then so is SQ. There’s also strong support within the next 5% below current price. Specifically, the last two times they were buyers at $223 that took it up 20%.
Fundamentally, this one is also beyond reproach. In fact, the growth is astonishing fast that it made it a bargain. In the last four years, management grew sales seven times. Its price-to-sales is 30% cheaper than Paypal. The only metric it lags at is the cash from operations. PYPL has it beat there with $6 billion per year. Regardless of minute details, SQ is a stock to own on dips and especially into support.
Stocks to Buy: SoFi (SOFI)
My third pick today is one that I would wait out a bit more. Yes, it’s not low enough to be atop of the list of stocks to buy today. But it is most definitely one to put on the shopping list. I’ve written positively about SOFI stock when it was down on its luck. Those have delivered good results.
But up here, I would rather wait for a dip closer to $20 per share before re-engaging long. This seems like I am being too picky, but in reality I just want my investments to start out well. Moreover, the earnings report is coming soon and that will bring a short-term lotto spin.
We’ve seen it too many times when investors punish stocks even with strong reports. The headlines are full of emotions and the humans are unpredictable. Waiting the event out eliminates a big short-term variable. This is still a sane move even at the risk of missing out on a few bucks of a breakout.
Fundamentally, SoFi is too new to judge with traditional metrics. I am confident that their business model can speak for its entire self. They are in the heart of fintech and therefore their runway is long. Their business models puts them in tight touch with retail and businesses alike. So, they will have a plethora of income streams to enjoy for years to come.
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.