The three stocks to buy today share the same thesis. The idea is to take advantage of temporary pain that is unfolding in their stocks but not their business. The underlying assumption is that they have no specific intrinsic issues. They merely need time to snap out of it.
Within that thesis we also have to contend with year-end jitters. Expectations from investors around this time are for a Santa rally. The indices have been trading in a choppy whipsaw action for a while. This is the by-product of having an environment where Wall Street cannot function without headlines.
I would like to say that this is temporary, but I doubt it. Because our smart phones connect us to news feeds 24/7. News travels really fast even if it is fake. Moreover, we can react to it with trading almost instantaneously. In addition, market maker machines trade at speeds a thousand times faster. Therefore, the old ways of finding bargain stocks to buy early are no longer as effective.
This is not because it’s no longer true, but because they are fewer opportunities. So, the process of finding these stocks to buy involves some basic technical know-how. Nothing that requires readers to be chart analysts, just simple logic will suffice.
The goal is not to find the absolute bottoms in stocks, but rather reasonable levels. I consider these three swing trade opportunities in speculative stocks. This nuance is important for establishing appropriate size and leaving room for error.
How the indices finish the year will definitely affect these three ideas. The headlines that are relevant to the investor psyche involve extrinsic factor like the pandemic. The markets will contend with Federal Reserve monetary headlines. At least the threat of locking down has diminished, and that could have been the game changer. Politicians are now pushing for caution not lock downs.
Without further ado, here are the three stocks to buy on weakness:
Stocks to Buy: Wayfair (W)
A common occurrence this year is for quality company stocks to struggle from the herd. They fall just because their sector loses fans on Wall Street. Wayfair has a thriving business, according to their financial statements. Revenues are expanding exponentially, however W stock cannot hold its bids.
Today we’re making the statement that it’s time to bet on a W swing trade into 2022. This is the poster child for proper stocks to buy on weakness. Online retailers are more popular than ever after the pandemic. The habits we created in 2020 are likely to linger forever.
This increased the level of demand for services like Wayfair. It’s only a matter of time that investors remember that its stock has upside potential. The crucial message today is that the downside risk is now finite.
W stock has struggled with the zone around $180 per share since its inception. This makes it in contention, so the bulls will fight for it with vigor. That is what we call support below, which allows for the bulls to find footing.
The opportunity is to be long W stock now while it’s still off the investor radars. The financial ratios are somewhat tricky to interpret. The price-to-sales is too low for me to make sense of it. While this could be a good thing, but I’m not using it as a selling point today. They generate $1.4 billion from their operations and that empowers them to execute plans.
Fundamentals aside, I only need my technical assessment of support to suggest upside. For that I must also set proper stop losses. Losing this week’s lows could invite momentum sellers to the party.
Clover Health (CLOV)
My second pick today is a painful stock chart to watch. Clover Health stock has been falling precipitously for months. The business itself is not showing obvious deterioration. However, it is the opinion of the investors that is collapsing.
Sentiment on the stock is as sour as it can get. There are critics from every angles, even fraud. Against that go the fundamentals of the company business. They have a business model that can generate revenues, and they are expanding upon them. The company also employs artificial intelligence to further empower the medical community.
For now the reasons to hate it are plentiful, and that also includes stock dilution. That one stings investors the most in their pockets and their sentiment. The highest profile fan is billionaire Chamath Palihapitiya. He remains steadfast as apparently he just added to his position in CLOV stock.
I have traded this before with mixed results, and I am will to try again here. I consider this a speculative trade but with proper stop losses. This means that investors should keep the size of it appropriate to the risk at hand.
The stock price tag of $4 makes it seem harmless. In reality, the investors can still lose 100% of their money. A low-dollar investment does not make it less risky. The options markets would be a good place to place the bets. There I can reduce my out of pocket expense even further and capture the swing rally back.
I don’t have any disillusions about valuation at this point. Clover Health is still in the stage of proving itself real or fake. I am realistic with my expectations that the odds are not with me. Time will be the final judge. Meanwhile the fight rages on.
Stocks to Buy: Fastly (FSLY)
FSLY stock moves fast in both directions, which makes it a dangerous bet. Out of the pandemic it rallied 400%, then gave 70% of it this year. The good news is that technically this presents an opportunity to buy it into support.
This is about the level from which it failed miserably in September of 2019. Then it took it eight months and a pandemic to blast out of it. Now, and 19 months later, the prior resistance should be forward support. The FSLY bulls can use it to establish footing and stop the slide.
The fundamental metrics tell a good story. Revenues now are 2.4 times bigger than 2018. Gross profits have more than doubled. They still lose money but that is not a focal point while they are growing. Price-to-sales ratio is tame under 14. For now, there are no obvious fundamental arguments against owning shares.
Demand for its services is likely to increase over time. They are in the right place since the demand for content is exploding. Competition is likely to get tougher but they should have an early mover advantage. The oncoming metaverse is likely to add to its demand. The only caveat here is for management to stay on point.
There are two points to make on that front. First, they need to better control expenses so that doesn’t become a problem. And they absolutely cannot have another outage like they did earlier this year.
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.
