Seasoned investors typically look for quality stocks to buy on the dip. Over the long-run, investing in robust companies when their share prices are down has been a great wealth creator for millions of Americans. Yet, the juicy returns in broader markets in 2021 pushed valuations to frothy levels.
In the final weeks of 2021, a large number of stocks were trading at record highs. However, since then there have been tailwinds. First came question marks over the effect of the omicron variant. And more importantly, economists have been debating what the Federal Reserve might do in the new year to fight inflation.
Since January, the S&P 500 index, Dow Jones Industrial Average, and Nasdaq 100 index have lost 5.6%, 3.5%, and 10.4% of their value, respectively. The volatility is understandably unnerving for many retail investors. Yet, many good companies are changing hands at prices not seen in a long time, and offering opportune entry points for buy-and-hold investors.
With that information, here’re seven of the top stocks to buy on the dip in February:
- Anthem (NYSE:ANTM)
- C3.ai (NYSE:AI)
- Home Depot (NYSE:HD)
- Invesco S&P 500 Equal Weight Technology ETF (NYSEARCA:RYT)
- Lyft (NASDAQ:LYFT)
- Vanguard Consumer Staples Index Fund ETF Shares (NYSEARCA:VDC)
- Vanguard Small-Cap Growth Index Fund ETF Shares (NYSEARCA:VBK)
Stocks to Buy on the Dip: Anthem (ANTM)
52-week range: $286.04 – $470.02
Our first stock is the health benefits group Anthem, which provides health payor services to around 120 million individuals. As one of the leading managed healthcare names in the U.S., Anthem gets significant investor attention.
Despite the pandemic, Anthem delivered robust results in the past several quarters. In addition to increasing membership numbers, management has also been putting emphasis on digitization efforts.
On Jan. 26, management issued fourth-quarter and 2021 results. Total operating revenue was $36.02 billion, up 14.2% year-over-year (YOY). The health insurer credited higher premiums thanks to membership growth.
In addition, it has seen an increase in pharmacy revenue within IngenioRx, its pharmacy benefits management group. Finally, for the quarter, adjusted net income was $5.14 per share.
Over the past 12 months, ANTM stock is up over 53%, and saw a record high in late December. But since the start of the new year, shares have lost about 2.5%. They currently change hands around $446 a piece.
In recent years, the company increased its dividends steadily, and the current yield is about 1.1%. Forward price-to-earning (P/E) and price-to-sales (P/S) ratios are 14.9x and 1.2x, respectively. Finally, the 12-month median price target on Anthem shares stands at $500. The stock deserves to be on your watchlist.
C3.ai (AI)
52-week range: $21.67 – $176.94
Next, we move to the artificial intelligence (AI) firm C3.ai, which became a public company just over a year ago. Enterprises use its software platform for building AI-powered apps.
Recent metrics suggest, “The global artificial intelligence market size was valued at $62.35 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 40.2% from 2021 to 2028.” Therefore, moves in AI stock and its peers get significant attention on Wall Street.
In early December, C3.ai released Q2 FY22 financials. Revenue of $58.3 million was up 41% YOY. Investors were pleased to see that subscription revenue increased by 32% YoY. However, adjusted net loss per share was 23 cents.
C3.ai has also increased the number of clients to 104, up 63% YOY. However, the oil services group Baker Hughes (NYSE:BKR) still remains its most important customer. Analysts are concerned that C3.ai relies on a key client for most of its revenue.
AI stock changes hands for $25 a share, down 23% so far in the year. Shares are trading at 11.8 times sales. And the 12-month median price target for C3.ai stock is $40. Since January, many tech shares like AI have declined double digits. But investors looking for bargains are likely to come back to the market soon.
Stocks to Buy on the Dip: Home Depot (HD)
52-week range: $246.59 – $420.61
Next on our list is Home Depot, the leading name in home improvement. In fiscal year 2020, sales were over $132 billion. The retailer has more than 2,300 stores in North America. In addition to brick-and-mortar stores, its e-commerce site offers around a million products.
When we look at the U.S. home improvement market, we note HD has the largest slice with about 60%. Competitors include Lowe’s (NYSE:LOW), privately owned Menards and Ace Hardware; as well as Build.com, owned by the UK-headquartered Ferguson (NYSE:FERG).
Home Depot announced strong Q3 numbers in November. Revenue reached $36.8 billion, up 9.8% YOY. Investors were pleased to see that customers have been spending around 13% more per visit compared to last year, pushing the average ticket size to $82.38. Net earnings of $4.1 billion translated into $3.92 per diluted share.
In the past 52 weeks, shares returned about 30.5%, and saw an all-time high (ATH) in early December. But since then HD shares come given up some of those impressive gains. As a result, HD stock is down over 12%.
As a stable dividend income name, Home Depot is likely to increase dividends in the coming quarters. The the current yield is 1.8%. Meanwhile, forward P/E and P/S ratios are 22.9x and 2.6x. Finally, the 12-month median price target fro HD shares stand at $425.
Covid-19 meant tailwinds for shares of companies in a number of sectors. And home improvement stocks, like Home Depot, were overall winners. Now, Wall Street is getting ready for Q4 metrics to be issued on Feb. 22. If the group can continue to fire on all cylinders, then investors will likely buy more of HD stock.
Invesco S&P 500 Equal Weight Technology ETF (RYT)
52-week range: $247.33 – $327.8
Expense ratio: 0.40% per year
Our next choice is an exchange-traded fund (ETF), namely the Invesco S&P 500 Equal Weight Technology ETF. The fund, which invests in US information technology (IT) stocks, was first listed in November 2006.
RYT, currently has 77 holdings. The top 10 names comprise close to 16% of net assets of $2.98 billion. IT services have the highest slice with 26.74%. Next come semiconductors & semiconductor equipment (24.58%), software (22.26%), and electronic equipment, instruments & components (11.95%).
Software-as-a-Service (SaaS) group Citrix Systems (NASDAQ:CTXS); financial technology (fintech) name Global Payments (NYSE:GPN); Corning (NYSE:GLW), which makes makes specialty glass; DXC Technology (NYSE:DXC); and, International Business Machines (NYSE:IBM) make up some of the names in the fund.
For the past year, the RYT is up around 10.2% and saw a record high in late December, 2021. But in the new year, it is down over 11%. Forward P/E and price-to-book (P/B) ratios are 22.02x and 5.84x, respectively. A further drop toward $285 would improve the margin of safety.
Stocks to Buy on the Dip: Lyft (LYFT)
52-week range: $33.94 – $68.28
Our next stock is the ride-hailing group Lyft. In the U.S., Lyft and and its biggest competitor Uber (NYSE:UBER) dominate the market. Starting with the early days of the pandemic in March 2020, both companies have faced significant headwinds in well over a year.
Lyft issued Q3 metrics in early November. Revenue went up 73% YOY and reached $864.4 million. The number of active riders also increased from 12.5 million a year ago to 18.9 during Q3.
Adjusted EBITDA came in at $67.3 million. It was in fact Lyft’s second consecutive profitable adjusted EBITDA. And adjusted net income reached $17.8 million. In Q3 2020, it was a loss of $280.4 million.
Lyft will report earnings next on Feb. 8. Management forecast revenue for the last quarter to be between $930-$940 million and adjusted EBITDA to come in the $70-$75 million band.
The ride-hailing stock changes hands for $37.50, down almost 43% so far in 2022. Shares are trading at 4.2 times sales. Meanwhile, the 12-month median price target for LYFT stock stands at $65. If investors can see meaningful progress toward profitability, they might be ready to hit the “buy” button in Lyft shares.
Vanguard Consumer Staples Index Fund ETF Shares (VDC)
52-week range: $164.57-202.54
Expense ratio: 0.10% per year
Throughout the pandemic, the U.S. consumer was resilient, a fact that supported shares on Wall Street. But recently, uncertainty regarding interest rates have brought question marks as to how consumers might act in the weeks ahead.
Yet, most analysts expect individuals to keep sending, especially when it comes to staples. Therefore, the Vanguard Consumer Staples Index Fund ETF Shares is our next choice. The fund started trading in January 2004.
VDC, which has 101 holdings, tracks MSCI US Investable Market Index. The top 10 holdings account for close to 63% of net assets of $7.6 billion.
In terms of the sub-sectors, we see Household Products (21.70%), Soft Drinks (19.10%), Packaged Foods & Meats (16.20%), and Hypermarkets & Super Centers (16.10%), among others. Procter & Gamble (NYSE:PG), Costco Wholesale (NASDAQ:COST), Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and Walmart (NYSE:WMT) lead the names in the portfolio.
In the past 12 months, the ETF is up to 14.3%, but has declined 2.7% since the start of the year. P/E and P/B ratios stand at 27.5x and 5.2x. Interested readers could consider buying VDC around $190.
Stocks to Buy on the Dip: Vanguard Small-Cap Growth Index Fund ETF Shares (VBK)
52-week range: $226.78 – $306.78
Expense ratio: 0.07% per year
Our last choice for today is another ETF, namely the Vanguard Small-Cap Growth Index Fund ETF Shares. The fund, which currently invests in 761 small-capitalization (cap) U.S. stocks, was first listed in January 2004. It might appeal to readers who already hold large-cap growth shares in their portfolios, but would now like to diversify.
The 10 largest stocks comprise 6.7%https://etfdb.com/etf/vbk/#holdings of net assets of $36.9 billion. Technology and health care shares have the highest weighting (each over 20%). Next in line are industrials (17.80%), consumer discretionary (15.90%), real estate (8.30%), and financials (5.1%).
Among the leading stocks on the roster are Bio-Techne (NASDAQ:TECH) that provides diagnostic solutions for healthcare companies; tech products and services supplier Entegris (NASDAQ:ENTG), which specializes in the semiconductor sector; manufacturer of decking products Trex (NYSE:TREX); Medical technology name Masimo (NASDAQ:MASI); and oil and gas group Coterra Energy (NYSE:CTRA).
Over the last 12 months, VBK is down about 16%. And most of that decline has come in the new year. Trailing P/E and P/B ratios stand at 32.9x and 4.9x. For buy-and-hold investors, current levels might be appealing.
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 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 3 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.
