This week we got the answer that the S&P 500 is in bear market territory. Now it’s up to the bulls to stave more short-term damage. Meanwhile, the bulls now risk falling for traps chasing mini rallies. Every pop will seem like the end of the correction, so caution is necessary. As such, investors should spend more time looking for stocks to buy after the correction.
Trying to time the bottom perfectly is not realistic. Besides it may open up investors to undue risk from overconfidence. If they assume a bottom, they are more likely to go all in. It’s important that we only take small bites for the next month at least. As for the likely zones for support, they are still below current levels.
I am more optimistic that most, but I also know that the target is likely 3,600 for the S&P. Once we lost the February lows, we triggered bearish patterns for it. But I also have seen patterns fall short of their targets. So the bulls could stave off the sellers long enough to negate it. For now, I am assuming no bottom is in. Therefore, my trades are tactical in nature.
But I will share a list of quality stocks to buy under more certain conditions. There are many more that won’t make my list, and that doesn’t mean they aren’t deserving. My parameters for this list are a bit different than my usual.
I am seeking quality in some, but only if they have hit a pre-pandemic support zone. For example, Apple (NASDAQ:AAPL), even though it is an awesome company, is still 40% above its pre-pan breakout level. I would also consider momentum stocks that have suffered too much in sympathy. I will even include Bitcoin (BTC-USD) related stocks, because crypto is also correcting. Another important parameter to always consider is relative value. Some of these stocks would also be on my bargain stocks to buy.
Since we are going into a very binary week, I caution against pouncing too eagerly into any of these stocks. Also I would spread the risk engagement over time, not all at once.
|ProShares Bitcoin Strategy ETF
Humanity is in a constant state of evolution, and I don’t mean from the biological perspective. Trends change and they often take big wide turns. The onset of social media was one, and it’s about to take another left turn. The metaverse is coming and Meta (NASDAQ:META) is likely going to bring it.
This is potential that should intrigue stock investors. Not including Meta stock means consciously missing out on the next big thing. Luckily, it has corrected hard off the 2021 highs. Currently Meta sits 53% below its highs. But the more exciting bit is that it is also above strong support. The zone below $160 per share has served as support since 2018. The bulls are likely to defend it again.
Also, the charts could have some technical reasons for optimism. If the indices stabilize, META stock has the opportunity to pursue a 30% rally. This is not a guarantee and will definitely need the markets’ needs.
The happiest place on earth wasn’t so during the pandemic. In fact the parks were empty for months and on a global scale. All crowd business came to a screeching halt, yet somehow Disney (NYSE:DIS) survived the crisis. In fact, it may have picked up a few good habits out of necessity. After all, the company’s financial metrics are back to a healthy state.
Disney still generates a ton of cash, and it is profitable with a reasonable price-to-sales ratio. Other sectors within the crowd businesses are not this lucky, and still struggling. There recently have been a few political skirmishes, but the attention has ebbed a bit. The launch of the streaming platform came at a good time. Now the company can leverage its reach well, since it has a ton of content. Disney even managed to grow sales above the pre-pandemic days. As long as we don’t suffer a similar blow to that inflicted by the onset of Covid-19, DIS stock is ready for its next test.
Shopify (NYSE:SHOP) stock has acted like the business is in deep trouble. In reality that isn’t true because Shopify is firing on all cylinders. The company provides turnkey solutions for its clients, and they love the company for it. The notion trickles down from the top, with the CEO staying in touch. The results of its efforts show in the financial metrics. SHOP stock report cards are outstanding, regardless of the price action on Wall Street. The 80% selloff has been more about expectations than actual fundamental failures.
Even if you assume that the rally was too big, the drop was even more ridiculous. In 2020 and 2021 revenues grew 1.9 and 1 times respectively. This means that business now is 4.3 times larger than it was in 2018. To find fault in that is a matter of unrealistic expectations. SHOP stock has support near $308 first, then more below $280 per share. At this point I bet it makes for a decent starter order for new investors.
Normally Amazon (NASDAQ:AMZN) would be on top of my list of stocks to buy. But I have developed a few concerns lately. The first comes from the high cost of materials, especially fuel. I fear that the next earnings report could be shocking. The membership premium hike will help, but some damage has likely happened.
Otherwise, I expect them to continue to dominate the industries that they enter. The new CEO deserves my benefit of the doubt, but not blindly. I am already uneasy about the buyback and stock split decisions. I would much rather see the company focus on using the cash to bring the world a new thing. Amazon’s dominance of the cloud is waning because it’s competing with some of the best companies on the planet. Amazon needs a new thing to crush.
Meanwhile, the company’s fundamentals are outstanding and there’s no apparent bloat. Amazon’s price-to-sales ration is 2.5x, which is the lowest among all giga-caps. Even its price-to-earnings ratio is at its lowest in a long while. With as much cash as Amazon can generate, management can continue to navigate the rough waters ahead. AMZN stock has support at $100 and the split made it possible for more buyers to participate.
The future will involve more financial transactions over electronic connections then ever. Therefore, we must include a financial technology stock among stocks to buy into corrections. My pick for this is Block (NYSE:SQ) because it is setting the pace. So far it has followed the “Stonks” path to destruction, so I would be looking for stabilization first.
After peaking three times in 2021, SQ stock fell 75% this year. It even failed to hold its pre-pandemic breakout levels. At its lows, it went to its pivotal levels from 2018. That’s a lot of disappointment to leave the stock this fast. Regardless, and while it is off its lows, things don’t yet look great for a bottom. But if the intent is to hold for the future, SQ is worthy of nibbling on these dips. Block’s revenues doubled in the last two years. And the two years prior to that its growth rate was more than 45%. Clearly the company knows how to execute its plans.
Fishing for a perfect bottom may bring more frustrations than good results. Besides, the financial metrics for SQ stock are impressive, so the risk is not large. Moreover, it is a leader in the segment that even old dogs like Visa (NYSE:V) and MasterCard (NYSE:MA) are chasing. There is no doubt that it will be relevant for at least a decade. That’s why I would definitely include it in a list of stocks to buy … even into this harsh correction that hasn’t yet ended.
ProShares Bitcoin Strategy ETF (BITO)
Bitcoin and most cryptocurrencies are also having a crisis along with the equity markets. That isn’t necessarily always true, but for now they are moving in stride. The correction in Bitcoin started last November, and my target for that was $20,000. So, there still is room to fall from here if the sellers want it. Not all bearish patterns play out to completion, and this one could end early.
Until we know more, I would only nibble in on BITO stock. This would be the mainstream way to benefit from a rebound in Bitcoin. The cool thing is that we won’t even need a special account. History so far shows that Bitcoin has performed better than all other asset classes. It falls harder but also rises incredibly fast.
BITO so far hasn’t seen its shining moments since it didn’t start until the peak last fall. It might look like it is falling into the abyss but we can take cues from BTC-USD. Its next support lies near the low levels from May. Losing that would bring about the last way down to $20,000. Incidentally, that was the massive breakout level from 2020 that took it to its amazing all-time highs. I expect a sharp rebound once a floor confirms itself. I would not go all-in because my target is still lower. Building a small starter position now should be good, then adding further at the bottom.
Salesforce (NYSE:CRM) reported earnings and the reaction was positive. This was despite overall growing market concerns. A stock that rallies under tough conditions deserves to be on the list of stocks to buy soon. This relative strength means that CRM stock could have a good summer. But first it needs one of two things.
The first is to retest the footing it just set, which is near $170. The earnings pop left a gap below, which could be a weak point for weeks. Or second, for CRM to rise above $193 per share. Beating such a sharp prior fail would bring more momentum buyers. The target from that could even extend to $220 per share. I don’t expect that to happen too quickly because of the extrinsic macroeconomic risks equities are facing this week. But when this passes, the buyers are ready to take this one higher.
The fundamental metrics on CRM are solid. It grows extremely fast while profitable. And it generates $7 billion in cash from operations. The company brought us the popularity of the SaaS, and it has shaped our future. All companies are chasing this model, even the giants like Microsoft (NASDAQ:MSFT).
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.