- Sea Ltd (SE): The Southeast Asia market is one of the most compelling regardless of broader headwinds.
- Shopify (SHOP): Caters to the decentralization of commerce from big players to small businesses.
- Twilio (TWLO): Ultimately, communication APIs will become more relevant, not less.
- DraftKings (DKNG): Despite a heavy hit to DKNG, the sports betting market is projected to grow.
- Sherwin-Williams (SHW): Housing demand bodes well for SHW as a downwind benefit.
- Estee Lauder (EL): Inflation hurts but the return to normal should help the beauty market.
- Intuit (INTU): Pivot to gig work should lift tax, financial software.
Typically, the term death isn’t bandied about in a positive light, so when it shows up on benchmark equity indices, the initial reaction is one of anxiety. But what exactly is a death cross? And does it really mean that you should abandon your strategy toward stocks to buy?
At the end of the day, all this indicator factually reports is a mathematical phenomenon, when a nearer-term market signal (usually the 50-day moving average) drops below its longer-term counterpart (in arguably most cases the 200 DMA). Generally, the death cross is a warning that the immediate emotions of the market have turned negative, thus impugning the idea of stocks to buy.
However, historical studies indicate that so-called death cross stocks represent a viable discounted opportunity — provided you’re patient enough to ride out incoming volatility. Put another way, the ominous-sounding phenomenon is a contrarian indicator, inviting forward-thinking investors to “zig” while others are “zagging.”
To be fair, history never provides a guarantee that it will repeat. And the volatility that comes with acquiring death-cross stocks to buy could be a lot longer than past data would suggest. So, take these ideas with a cautious approach and above all, perform your own due diligence.
Sea Ltd (SE)
While the death cross in the S&P 500 index flashed more recently — just prior to the mid-March session if you want to be precise — consumer internet firm Sea Ltd (NYSE:SE) has been in the dumps for a lot longer. Just as the market rang in the new year, SE stock became one of the dreaded death cross stocks.
With a year-to-date loss through the March 18 session of 45%, Sea is certainly a polluted putrid mess. However, the data suggests that it could very well be one of the death cross stocks to buy.
First, Sea concentrates its footprint and development in the lucrative Southeast Asia market. One of the advantages of the region is that it provides a geopolitical counterweight to China’s surging dominance.
Second, according to a Reuters report, experts project that the Southeast Asia internet economy could reach $1 trillion by 2030. Using 2017 nominal GDP data, this market would exceed the entire economy of Turkey and fall in just behind Indonesia. Therefore, SE is easily one of the death cross stocks to buy for the long haul.
As I write this, Shopify (NYSE:SHOP) is up over 45% during the trailing week. Therefore, it’s already demonstrating that it wants to prove itself as one of the best death cross stocks to buy. Despite the enthusiasm, though, speculators can still enjoy a sizable discount.
For the record, SHOP’s death cross flashed on Jan. 21 of this year. Despite the recent upside momentum, the security is still down 43% YTD, articulating just how poorly Wall Street views the e-commerce platform. Even on a trailing-year basis, shares are down a conspicuously large 33%.
True, SHOP is risky — there’s no denying that. At the same time, more small businesses are participating in the e-commerce game. However, many individual entrepreneurs are being hampered by a lack of reputation or trust. However, emerging technologies like the blockchain can codify trust, thereby facilitating the continued decentralization (ironically enough) of e-commerce.
With Shopify continuing to make it easier for the little guys to compete with the alpha dogs, over the long run, SHOP could win out.
Once one of the high-flying securities and the toast of Wall Street, communication API (application programming interface) specialist Twilio (NYSE:TWLO) has seen its fortunes turn for the worst. On a YTD basis, TWLO shares have tanked over 39%. What’s worse, on a trailing-year basis, they’re down nearly 56%.
Unlike some of the other death cross stocks to buy, TWLO flashed its warning signal in late September of last year. Looking back in hindsight, Twilio could have been the canary in the coal mine for the advanced communications and technology sector. As an API specialist, I’d say that’s quite ironic.
Still, like Shopify above, TWLO is up big in the market, gaining almost 22% during the trailing week. To many speculators, it may come down to what the experts are projecting: a compound annual growth rate of 21.9% between 2020 to 2027, ultimately culminating in a $590 billion segment at the end of the forecasted period.
And that’s a believable target considering that everybody’s on their phone so much. If I had to bet, communication APIs will be more relevant in the future, not less.
Following its introduction via a reverse merger with a blank-check firm, DraftKings (NASDAQ:DKNG) accomplished what few special-purpose acquisition companies do: get up and stay up. Starting from the typical initial offering price of $10, DKNG was trading hands at above $70 at its peak. To make 7X your money inside of two years is always a solid deal.
However, it appears — at least for the moment — that the love affair is over. DKNG flashed its warning sign around mid-June of last year. Its 50 DMA got agonizingly close to rising above the 200 DMA in the early part of the fourth quarter. However, it wasn’t to be. On a YTD basis, DKNG has hemorrhaged an unsightly 29%.
Still, this might be one of the death cross stocks to buy again for the reason of analyst consensus. According to data from Grand View Research, the sports betting market could grow from $71.53 billion in 2021 to $140.26 billion by 2028.
With conditions slowly returning to normal following the initial onslaught of the coronavirus pandemic, this is a believable forecast.
Before you consider Sherwin-Williams (NYSE:SHW) as one of the death cross stocks to buy, you should note that there’s a reasonable chance that SHW is flashing the dreaded sign as a straight interpretation; that is, the death cross is flashing because it’s about to die.
Why do I say that? Well, the data that supports the case for SHW — strong housing demand particularly in places like California — is also the same data that critics use to warn against the investment.
On the negative side, it’s quite possible that the housing market has been divorced from reality. Should factors like soaring consumer inflation crimp corporate sales and earnings, that could result in mass-scale job losses. In turn, housing could crumble.
But on the positive front, if obviously biased real-estate agents and brokers’ non-stop assertions about housing shortages wins the debate, SHW will likely see downwind benefits from new homeowners wanting to paint and otherwise beautify their abodes. Just think about this one extra carefully.
Estee Lauder (EL)
Specializing in beauty products, skincare and makeup, Estee Lauder (NYSE:EL) is one of the most recognized brands in the world. However, the Covid-19 crisis shocked this industry due in part to specific headwinds imposed such as reduced foot traffic and initial fears about person-to-person contact. Therefore, some might not be too surprised to see EL shedding 25% YTD.
But here’s the thing — it’s possible that the market could be overreacting to outside news. True, armed conflict is never conducive to good business practices. And consumer inflation leads people to skimp out on premium products like Estee Lauder. However, with so many people eager to return to normal, these concerns may not pan out too negatively for EL.
Indeed, the security could be one of the death cross stocks to buy on the basis that if society in general is returning to normal, certain behaviors that were perfectly acceptable pre-Covid would make a permanent comeback post-Covid. That would include cosmetics users increasing their purchases for both professional and personal reasons.
Admittedly one of the most boring names on this list of death cross stocks to buy, Intuit (NASDAQ:INTU) gave us the ole moving average flash early in March. Since the beginning of this year, INTU is down 24%. In fairness, though, the trailing week saw shares of the financial services firm — perhaps best known for its TurboTax software — swing higher by 9%.
Normally, I don’t imagine too many folks getting out of bed excited to invest in tax software. However, your opinion might change due to the gig economy, a glamorous term to describe independent contractors.
According to a study by a famous credit card company, the global gig economy generated $204 billion in gross volume in 2019, with analysts projecting that this figure will grow 17% by 2023. Some experts suggest that by 2027, the U.S. may have more gig workers than non-gig workers.
That would be a remarkable phenomenon, one that would almost surely benefit INTU stock. After all, gig worker taxes (who receive 1099s as opposed to W2 forms) can be much more complicated than their corporate employee counterparts.
On the date of publication, Josh Enomoto 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.