- Block (SQ) stock is down 65% from its highs.
- There are signs of resurgence of risk appetite.
- SQ stock should be on investors’ shopping lists.
Block (NYSE:SQ) stock has been falling nonstop since it peaked last summer. But in all fairness, there has been heavy downside drag from the indices. This morning SQ fell 6% in sympathy to market-wide dips. Wall Street investors have lost their confidence and for understandable reasons. There are many sources of risks that are each capable of creating crashes. The threat of war and on a global scale should scare everyone. This one doesn’t even care about how great the company is. If we get the headline of international struggle, stocks will fall.
Then there is the ogre-like actions of the U.S. Federal Reserve. Last week Fed chair Jerome Powell could not have been more hawkish. Most investors missed the nuances on Wednesday, but the message was clear. Mr. Powell essentially repeated his 2018 “auto pilot” posture. He didn’t use those words this time, but that is how it was interpreted.
The Fed committed to two more hikes and six months of balance sheet runoff. They will do that regardless of the economic reports that may follow. That to me folks, is a course of action from two to six months that is on rails. The Fed has declared itself an enemy of Wall Street. So, we should be careful fighting the Fed, especially going into May.
Meanwhile, stocks like Block are presenting potentially great entry opportunities for investors. The key point is to be patient and leave room for error.
SQ Stock Has Suffered Enough
The general downside pressure from the indices took great stocks down with it. SQ and PayPal (NASDAQ:PYPL) stand out as exceptional bargains now for at least two reasons. They have been successful for a while already, so their business is not in question. Moreover, they both have financial metrics to back the bullish thesis.
Block reported earnings last week when the indices were on the struggle bus. To make matters worse, the quality of the report was not that great. Nevertheless, the stock rallied against those odds, which was impressive. Perhaps it’s running out of sellers, and more investors now see a the value proposition it offers at these levels.
Last year SQ revenues were three times larger than 2019, and they are not losing money doing it. Also in 2021 they created $800 million in cash from operations. So, they can feed their own growth without needing to borrow much.
Keep It Block on Your Buy List
Ultimately, SQ stock still deserves to be on a list of stocks to buy. I do have concerns over the shrinkage in sales in the latest quarter, but I will give them a pass until I see the next results. In addition, the correction has been going on for months. Therefore, I am comfortable knowing that I am not chasing in panic a runaway train. Mr. Buffet from Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) suggested that we try to be greedy when most are fearful. I believe that applies to this caliber of stock.
Earlier I noted the importance of patience when catching a falling knife. While the quality of this company is comforting, investors must leave dry powder for later. Taking starter positions in SQ stock makes sense. But since we don’t know that this is an absolute bottom, we leave room to add later. If the stock falls dramatically, we could then add the rest for a better average price. If it turns out that this is the bottom, then we’d already be long.
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.