Wall Street had a bit of a spasm last week. Stock prices fell sharply almost system-wide. The action was indiscriminate and did not make much sense. This brings about opportunities in many stocks to buy on these dips. But investors would need to assume that there aren’t nefarious circumstances behind the selloff.
So far we have clues but none of them indicate new issues. There were many economic and health headlines that contributed to investor unease. None of which presented themselves in the actual price action of the corresponding metrics. For example, if investors were fretting rate hikes, then bond prices would not have rallied as hard as they did.
Secondly, we can’t blame the virus headlines either. Because stocks Like Zoom (NASDAQ:ZM) that would benefit from lock downs fell harder than the market. Therefore there was something else in play, which leaves a question mark open this week.
If we don’t learn of anything new then I can assume that it was Wall Street folks doing their thing. All we can do is play along with their shenanigans and just be ready. One way to do this is to predominantly pursue opportunities where the downside risk is finite.
The list of three stocks to buy today presents a good example of that. The stocks have already lost a lot of their froth leaving a lot of intrinsic value in place. Even if the indices continue lower, the bears for these stocks would need to work harder than the rest. This is not the same as calling an absolute bottom in any of them.
I’m never looking to find the perfect entry point. However, I am always relentlessly seeking ways to avoid the obvious mistakes. Initiating positions in quality stocks near solid support levels is a good start toward the goal.
Catching the proverbial falling knife on Wall Street is always risky business. Doing it with these three stocks to buy today is less dangerous than others. This makes the whole task less daunting, yet investors should not go all in. Those already long the stocks should wait before adding more. Otherwise, only starter positions would be appropriate and with room for error.
The three are:
Stocks to Buy: Walmart (WMT)
The retail sector has had a heck of a time adopting to the new world that Amazon (NASDAQ:AMZN) created. Most struggled but a few old dogs emerged victorious like WMT and Target (NYSE:TGT). Walmart acted early in defense against the e-commerce trend. Investors rewarded them for that by posting all-time highs last year.
The reaction to WMT stock out of the pandemic was similar to that of Amazon’s. This current drop seems too sharp, but it comes from a high altitude. Therefore, I consider this a trade not a long-term investment entry point. So, if WMT stock falls below last week’s support levels, I would exit the trade and retry lower.
Losing $135 per share this week could trigger a bearish pattern that could take it down 10% from there. This is not my forecast, but as a trader I need to know it’s there. Conversely, on the bounce I would look to book profits fairly fast along the way. There will be sellers lurking as Walmart stock approaches $143 per share. This is even more true $5 higher.
The bulls would need a lot of help to regain the all-time highs. But if they manage to do that, the breakout from there would be phenomenal. This won’t be a likely scenario too soon, so investors should focus on support this week instead.
In summary, WMT stock has critical support below and opportunities above. In between here and there there are at least two lines of contention. Longer term, there are great entry points near $120 per share.
Virgin Galactic (SPCE)
Virgin Galactic’s stock chart often looks like the flight path for moonshots. This is fits since it’s in the business of hurling people into space. I’m a big fan of science fiction and I eagerly await humans booking tickets into outer space. SPCE stock is the only public one in that business now.
There are very few absolute certainties on Wall Street. One of them is knowing when not to chase a stock. There should be no scenario where I would be smart to buy SPCE shares back in June. It was over $56 per share and an easy mistake to avoid. Those investors needed only to look left on the chart. Unfortunately for those who didn’t, they are now down 75% on their investment.
Investing “for the long term” should not mean blindly buying a stock on a thesis. Conversely, down at these levels going long SPCE stock makes much more sense. Usually for a long-term investment I require a thesis that has better current fundamentals. This is not the case for Virgin Galactic, so I still require caution.
This is a new business trying to get off the ground. Therefore, the financial metrics don’t make my argument and that’s OK. My thesis is about assuming that in the future they will have a thriving business. I am confident that they will also have competitors, most likely from Amazon and Tesla (NASDAQ:TSLA) founders.
It is worth repeating that investors should not go all in. One way they can do that is to switch trading methods and use a bit of options. Selling puts instead of buying stock allows for room for error. These are tumultuous times on Wall Street, which makes them perfect to expand our investment bag of tricks.
Stocks to Buy: Twilio (TWLO)
Investors who want to venture into trading Twilio stock need to have Dramamine on hand. This is the mother of all momentum stocks, so it moves really fast in both directions. It has been in a slide since its February records. From high to low it lost almost half of its value.
The good news for the bulls is that it is falling into the base of the September 2020 108% rally. More often than not, when stocks fall into such pivotal zones they find buyers lurking. Bouncing off support is one thing, maintaining the ascending trend from that is the tricky part.
There is support below, but I am sure that there will be sellers near $325 per share. It would be essential for the bulls to not lose the progress of making higher-lows. Otherwise if for whatever reason TWLO stock loses last week’s support, it risks falling below $200 per share.
This is a good trading opportunity, so it would make a much better investment opportunity lower. The brave that try to catch it now need to have a fast hands. I would suggest using tight stop losses also booking profits early.
Either way, this is an active tactical trade not yet a full-blown long-term investment. Remember that in May of last year the stock was still $70 lower than current price. Fundamentally, even at this level TWLO stock is not a bargain. Therefore, “value” is not an argument to get into it all in. Nevertheless, it still belongs on a list of stocks to buy now.
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.