- Palantir (PLTR) has a great pedigree and a currently successful business.
- PayPal (PYPL) is a leading fintech company and deserves better respect from wall street.
- ARK Innovation ETF (ARKK) is a basket of companies with bright futures.
The Wednesday equity session on Wall Street had two faces. The first was optimism mainly surrounding the small cap sector. However, the tech sector as represented by the Nasdaq suffered severe blows. My focus today is on finding stocks to buy from the sector that did well yesterday. But also note that it’s the one that is most out of favor for a longer time. Specifically I see stocks that would fit the profile for Cathie Wood’s Ark Invest from last year. In case you haven’t noticed, that profile of equities has been on sale with ferocity for more than a year.
During the systemic selling of Ark ETFs, great stocks have suffered tremendous blows by association. In spite of tremendous business successes and future promises, investors refused to hit the buy button. Today we highlight three that could be bargains. In the long run, these stocks to buy will likely yield profits for patient investors. An inversion of a classic Warren Buffett quote, this is a situation where you should be greedy when others are fearful.
Some of the blight that happened in the tech sector yesterday was in sympathy to Netflix (NASDAQ:NFLX). They reported earnings and disappointed investors as they haven’t before. So far Wall Street has bought into NFLX stock because of its rapid growth. On Tuesday, management delivered a report card that showed shrinkage and their forecast was worse. As a result, the stock collapsed, and for good reason. The sympathy moves bled into other stocks but temporarily. This morning, Tesla (NASDAQ:TSLA) is rallying on its own earnings results.
With today’s write-up, I am skirting the whole tech segment. The idea is to find opportunities that may succeed regardless of what the giga-cap stocks do. Because these three stocks to buy have not been popular, I would consider them speculative for now. I have reasons to believe that the selling should abate, but there are still external factors to consider.
Wall Street still faces headline threats from international wars. There’s also the matter of a combative central banks. Specifically the U.S. Federal Reserve has declared its extreme hawkish intentions. In 2018 simple words from Fed chair Jerome Powell caused a crash into Christmas. In fact, they ended up reversing their quantitative tightening program. They consequently restarted easing, which they just ended. The least we can say is that it’s a bit of a mess out there, so we should tread carefully while considering these stocks to buy.
|ARKK||ARK Innovation ETF||$54.43|
Palantir (NYSE:PLTR) stock came out of the gate screaming into a massive rally. Within three months of its non-traditional IPO, PLTR exploded 350%. Sadly that marked the high water mark that stands still to this date. The January 2021 highs of $45 per share will probably be a problem for a while.
So far that’s nothing but bad news, but there is plenty of good stuff to come. Investors should not judge a company strictly by its stock price. Palantir’s financial reports have good marks — they are not failing grades. The company currently has an existing $1.6 billion book of business and a respectable growth rate. The reaction to its last earnings report was negative. This was mainly because of disappointment over the government side of the business.
The experts failed to focus on the fact that regardless of that revenue still grew 34% overall. If a store sells fewer apples than oranges but grows the overall company, then the sales mix shouldn’t matter. The goal for Palantir is to grow, and refocusing sales targets is a skill. Over time investors may grow more confident with the Palantir team.
Management already has a strong pedigree and should have earned the benefit of the doubt already. However judging by the price action, PLTR still has a way to go. Technically, there’s good news in the chart because it stopped making lower lows. In fact there’s a budding higher low trend, which will soon tackle resistance levels above. Specifically if the bulls can exceed $15 they strive for another 25% rally from there.
In addition, coming up soon are the earnings report. Management will have the chance to redeem itself from the last round. Experts on Wall Street agree with me. Their average price target for PLTR stock is 18% above its current value.
When it comes to making excuses for PayPal (NASDAQ:PYPL) stock, I would have to get pretty creative. It is bizarre how Wall Street hates this successful company so much of late. Its stock is behaving like it’s going out of business. The descending trend matches that of Didi (NYSE:DIDI), which is delisting itself. There is no world where this should make any sense, especially if you examine the results.
The PayPal business opportunity is wildly successful. But don’t take my word for it; check it out in the financials. PayPal has grown its business almost three fold in seven year. It is also doing it profitably, because its net income was $4.2 billion last year. In spite of this deterioration in stock price, it also delivered $6.3 billion in cash from operations.
These are hardly slacker numbers by any stretch of the imagination. In addition to the growth, the valuation has now become a bargain. The value argument is loud and clear. PYPL sports a 4.8 price-to-sales ratio and a 29 price-to-earnings ratio. That’s cheap even in absolute terms compared to a company like Apple (NASDAQ:AAPL).
Meanwhile, PYPL stock is one weekly candle away from the pandemic bottom. Investors who have patience and a slightly long-term horizon can own some with confidence. The weak hands have fallen, and the owners are realistic with their expectations. Of course a market-wide crash can create new lows just like any other stock.
ARK Innovation ETF (ARKK)
We can’t have Ark Invest in the title without having a direct element of it in our write up. That’s why I am adding ARK Innovation ETF (NYSEARCA:ARKK) to the list. Fundamentally, the top 10 component companies don’t need my endorsement. Tesla (NASDAQ:TSLA), which is number one, is a wildly successful company. On April 20, it delivered its earnings report, and the action was furious. It opened on April 21 at $1,074.73.
The top 10 of ARKK includes other successful innovators like Roku (NASDAQ:ROKU), Block (NYSE:SQ) and Zoom (NASDAQ:ZM). Collectively, they encompass 50% of the total fund. ARKK stock fell hard yesterday but for no specific reason. Perhaps the drag from NFLX collapse weighed heavy on other upcoming earnings. If Tesla stock can rally and hold it together today, it would stave off the wave. Eventually, these are successful companies, so their stocks will recover. Owning ARKK stock makes for a reasonable blanket bet on those odds.
Technically, there are also reasons to have optimism. The steep descent into the stock abyss created a sharp wedge. Those tend to break violently upwards into an equally impressive rebound. However, I would prefer it if they quietly chip away at a rally rather than a “V” bottom. There is evidence of a bullish pattern emerging that could target $88 per share this year. Incidentally, this was a serious accident scene from which the stock collapsed 43% on Jan. 5.
In closing, I’d like to remind you that we are still at risk from macro risk. So even if this is a viable list of stocks to buy, caution is mandatory. Investors are on edge and they are quick to hit the sell buttons.
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.