The Federal Reserve’s inflation-fighting campaign killed growth stocks. But many are rising from the grave. Therein lies opportunity. Accumulation signs are multiplying, and bottoming patterns now litter the landscape. Below I will share three oversold growth stocks to buy now.
In this environment of widespread carnage, it pays to be picky. This was not a dart-throwing exercise but a meticulous process of finding growth stocks that were already on the mend and had either completed or were in the process of completing trend reversals. Those exhibiting relative strength rose to the top. Finally, to avoid redundancy, I selected companies in different industries.
That’s the pitch. Here are the picks.
| Ticker | Company | Recent Price |
| BABA | Alibaba | $110.78 |
| SHOP | Shopify | $32.87 |
| OKTA | Okta | $102.78 |
Growth Stocks: Alibaba (BABA)
After over a year of destruction, Chinese stocks are finally looking up. Perhaps it’s because the valuations have become too attractive to ignore. Maybe it’s because Chinese regulators are striking a friendlier tone toward public companies. The latest round of optimism comes from the country’s Ministry of Finance considering $220 billion in stimulus. Regardless of the reason, the price action in giants like Alibaba (NYSE:BABA) has drastically improved.
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BABA stock has rallied 65% off the lows. More impressive than the magnitude of the move is the duration. BABA bottomed in mid-March (well before the S&P 500) at massively oversold levels. Since then, we’ve seen demand gradually build.
The last six weeks of appreciation have pulled the 20-day and 50-day moving averages higher. This week, prices finally topped the 200-day moving average for the first time this year. Along the way, we’ve seen steady signs of accumulation and virtually zero signs of distribution.
If you’re shopping oversold growth stocks and want one that’s already made the turn – consider Alibaba.
Shopify (SHOP)
Speaking of shopping, Shopify (NYSE:SHOP) is the second growth stock worth considering. The Canadian e-commerce juggernaut is fresh off a 10-for-one stock split that sank prices beneath $40. While the stock had cheapened significantly ahead of the event, courtesy of the bear market, the split still opens the stock to a new class of retail investors.
SHOP stock is about as oversold as it gets. Prices fell a horrific 83% from the highs but show slowing momentum. The latest downswing on the weekly time frame made a lower low, but the RSI made a higher low, resulting in a classic bullish divergence. We’ve also seen prices stagnate for the past two months, creating a straightforward breakout trade if prices can vault past $40.
If you think the breakout is inevitable, buying above Friday’s high provides a quicker entry.
Growth Stocks: Okta (OKTA)
Okta (NASDAQ:OKTA) is another oversold growth stock begging to be bought. Shares of the San Francisco-based software company declined as much as 73% from their 2021 peak. The massacre pulled the RSI to 25 before buyers finally arrived to put in a bottom in May. The price action since then has been constructive, and we now have a double bottom on the weekly time frame with clear air above.
Meanwhile, the daily chart formed a higher pivot low last week alongside the S&P 500 and is now above the 50-day. The rally has pulled the daily RSI to 58, its highest reading this year. A break above the $105 resistance zone clears the way for a rebound to $140. That leaves plenty of upside if the rotation into growth stocks continues in July.
On the date of publication, Tyler Craig 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.
