The expert opinions are severely divergent on stocks. Some believe that this is the start of a new leg higher. Others think the indices are forming a top. What is contributing to this is the fact that current economic conditions are unique. We are literally off the charts. Yet, within this confusion we continue to seek stocks to buy, preferably on dips. This would lower the odds of chasing too late.
The experts from both sides offer sound theses. There is also an overabundant supply of data to support every point of view. When things are this confusing, I usually revert to going with the flow until something changes. Investors, meanwhile, should have some balance in their portfolios (more on that later).
In an environment where we hardly get any drawdowns, the task of finding good stocks to buy toughens. Therefore, I restrict myself to seeking ones that have fallen out of favor in an ascending market. This last bit is important because it is the underlying assumption that the bulls remain in charge.
Mathematically, the government has infused astronomical amounts of money to get us out of the pandemic shutdown. They may have overshot a bit, so expecting a crash is an unlikely scenario. What has been happening will probably continue unless something breaks. This is Wall Street after all, and they have done it before.
Behind the scenes, the so-called experts and smart money get creative. In the process they build investment vehicles that have the propensity to break systems. There is no evidence of it here but there never is, just like back in 2008. Nobody plans on having an accident – yet they do happen.
An easy way to temporarily protect against crashes is to own CBOE Volatility Index (VIX) call options out in time. This is not an insurance policy against all of the assets. The idea is to give the investors enough greens on crashes in order to jump in and fix some things.
The three stocks to buy are:
- Twilio (NYSE:TWLO)
- RingCentral (NYSE:RNG)
- Humana (NYSE:HUM)
Stocks to Buy: Twilio (TWLO)
The fundamental argument for owning TWLO stock is a slam dunk. The company serves the cloud from many angles. That’s where every company in the world is aiming to be. The migration process is ongoing but has years to go still.
The evidence suggests that the company is executing well on its plans. They are growing their sales at a fast clip. The trailing 12 months revenues are almost six times bigger than 2017. They haven’t skimped on spending to do it, but for now it works. Management cannot accomplish hyper-growth while pinching pennies.
This aggressive growth works well for TWLO stock in a bullish Wall Street mindset. If this changes then management would have to adapt. Until then, they get the benefit of the doubt, so the stock is attractive. Technically it is just above the $340 pivotal zone for almost a year. That usually is support with an even stronger zone $40 lower. Short term it could swing back up to $410 per share. There it would have another technical breakout opportunity.
There is the concern that it is now more than 400% higher than the pandemic bottom. If there is a macroeconomic hiccup, price action froth like this creates a risk to investors. Booking profits along the way makes sense.
Wall Street expert commentary is confusing. Recently, two firms changed ratings on RNG stock. One raised the price target to $300 while the other lowered it to $342 per share. The message is confusing but in reality the current price is below both targets. The conclusion is to just own it
The stock has corrected 40% since February. This most likely drained a lot the froth out of it. It found support near $240 per share, so that’s the base for today’s assumption. The bulls of RNG stock have a swing trade opportunity to reach its late June highs. There it will face resistance, but it’s not insurmountable.
If this is a trade, then there needs to be a stop loss below $232 per share. The technical downside target from that would be a harsh correction perhaps as much as 30%. This is not my forecast, but I have to be aware of it exists. Long-term investors can simply take a partial position to start. They tend to not want to stop out because they have long-term goals. However, leaving room for error by taking only a partial starter makes sense. If the worst case scenario unfolds, then they have room to add and manage risk lower.
The fundamentals on RingCentral are strong, as they tripled revenues in four years. While it is still losing money, it is not outrageously expensive. I don’t expect them to be profitable yet, because they need to spend to grow. RNG stock has a price-to-sales under 17 and that is reasonable in line with Tesla (NASDAQ:TSLA).
The world is going digital at an accelerating pace. RingCentral has been there since 1999. They have early mover advantage and that gives them an edge. The stock price is in a zone that has been pivotal since the pandemic. RNG stock came into the Covid-19 crash from an all-time high. It quickly recovered like Zoom (NASDAQ:ZM) and Amazon (NASDAQ:AMZN). By early May of 2020, the stock had broken new records.
It rallied as much as 76% before correcting this March. Here it is back at the starting point where it should find support. This bullish thesis makes technical and fundamental sense. Coming full circle to the analyst opinions, their average price targets for RNG is $410, according to Yahoo Finance.
Stocks to Buy: Humana (HUM)
Investors often react wrongly to earnings reports. HUM stock fell more than 10% after it reported last month. Sellers stepped in like it had delivered horrible new. They didn’t. It’s another case of expectations being too far past realities. The earnings were weak relative to last year, but sales still grew. I am willing to let it slide for two more quarters.
Dips this big in quality stocks are opportunities for patient investors. Technically, the $400 zone served the base for two 15% rallies in the past four months. This is clearly a place where fans of HUM stock step up. I bet they do it again, but I also have to recognize there could be pain if they don’t.
The thing about support zone, if they fail, they bring new downside scenarios. In this case, if HUM stock $397 fails, it could target $370 per share. Either case, the stock has value now and would make even more sense lower. The opportunity is good but not foolproof. Going all in is wrong, so investors need to leave room for error.
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.
Nicolas Chahine is the managing director of SellSpreads.com.
View more information: https://investorplace.com/2021/08/3-stocks-to-buy-into-the-fall-season/