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Apply Buy-on-the-Dip Strategy in the Near Term: 5 Picks
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Wall Street has enjoyed an impressive bull run for two months after completing a terrible first half of 2022. However, the rally halted on Aug 19 as the three major stock indexes fell sharply. U.S. stock markets may remain volatile in the short term based on a few factors that we will discuss below.
However, each and every dip will be a good opportunity to enter the market to tap mid to long-term gains. We have selected five U.S. bigwigs with a favorable Zacks Rank that are already trading at a deep discount. Further decline in these shares will be a strong entry point. These companies are — Tesla Inc. (TSLA - Free Report) , Airbnb Inc. (ABNB - Free Report) , Fortinet Inc. (FTNT - Free Report) , Oracle Corp. (ORCL - Free Report) and Schlumberger Ltd. (SLB - Free Report) .
Volatility May Reappear on Wall Street
U.S. stock markets may face volatility in the near term. Market participants remained cautious about the Aug 25-27 scheduled annual Jackson Hole Symposium of the Fed. Although no decision on interest rate hike will be taken in the meeting, the central bank will provide an important indication regarding its near-term policy prescription. This year, policies will be centered around mounting inflation.
Minutes of the Fed’s July FOMC also showed that almost all Fed officials had given consent to a rigorous rate hike until inflation reaches at least close to the central bank’s targeted 2% rate. The consumer price index dropped slightly to 8.5% in July from 9.1% in June. However, in absolute terms, inflation remains highly elevated.
The U.S. GDP contracted in the first two quarters of 2022. Consumer and business spending levels are softening. Our latest estimate suggests that total earnings of the S&P 500 Index will rise 1.9% in third-quarter 2022, implying a sharp fall from 7.2% projected at the beginning of July.
Finally, from mid-June lows to Aug 18, the Dow, the S&P 500 and the Nasdaq Composite have rallied 14.7%, 17.8% and 22.7%, respectively. Although these indexes are in negative territory year to date, their recent valuation may result in some profit booking in the near term.
A Buy-on-the-Dip Wall Street
Under the present circumstance, market participants should adopt a “buy-on-the-dip” strategy instead of the “sale-on-the-rise” strategy we saw from mid-January to mid-June. The fundamentals of the U.S. economy remain solid.
Despite near-term expected fluctuations, market valuation is unlikely to revert to the mid-June lows. Moreover, the U.S. economy has several future catalysts.
On Aug 16, 2022, President Joe Biden signed a $430 billion Inflation Reduction Act. The size of the allotted money may rise up to $737 billion in 10 years. The act has provisions of $390 billion to combat climate change. Per the Biden administration, the most important way to restore a clean climate is to encourage Americans to shift toward electric vehicles.
On Aug 10, 2022, President Biden signed the CHIPS and Science Act that will provide $52.7 billion to microprocessor developers for five years. The Biden administration has expressed concerns that the United States had a 37% share in global semiconductor and microchip production in 1990, which drastically dropped to just 12% in 2021.
On Nov 15, 2021, President Biden signed a bipartisan infrastructure act of $550 billion in addition to the previously approved funds of $450 billion for five years. The law aims at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
Our Top Picks
We have narrowed our search to five U.S. corporate giants currently trading at a deep discount to their 52-week highs. These stocks have strong potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Tesla has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues. The global auto industry is gradually moving toward electric vehicles. Tesla is expected to be the largest beneficiary of this trend.
Despite the chip crisis, Tesla reported strong deliveries of 254,695 units in second-quarter 2022, up 27% year over year. Additionally, TSLA’s energy generation and storage revenues are growing, thanks to the positive reception of the Megapack and Powerwall products.
TSLA has an expected earnings growth rate of 74.6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.4% over the last 30 days. Tesla is currently trading at a 28.4% discount from its 52-week high.
Airbnb is riding on an improvement in the travel industry. Continued recovery in both longer-distance and cross-border travel owing to a reduction in travel restrictions is benefiting ABNB’s Nights & Experience bookings. Additionally, growth in Average Daily Rates and Gross Booking Value is acting as a tailwind.
Growing active listings in Latin America, North America and EMEA are contributing well to the top-line. Further, growing sales and marketing initiatives along with continuous efforts to upgrade various aspects of the Airbnb service are helping the company gain momentum among hosts and guests.
Airbnb has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 15.8% over the last 30 days. ABNB is currently trading at a 46% discount from its 52-week high.
Fortinet is benefiting from rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely. FTNT is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network offerings.
Moreover, continued deal wins, especially those of high value, are solid drivers. Higher IT spending on cybersecurity is further expected to aid Fortinet to grow faster than the security market. Also, focus on enhancing its unified threat management portfolio through product development and acquisitions is a tailwind for FTNT.
Fortinet has an expected earnings growth rate of 30% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2% over the last 30 days. FTNT is currently trading at a 31% discount from its 52-week high.
Schlumberger is the largest oilfield services player, with a presence in every energy market across the globe. Being the leading provider of technology for complex oilfields, SLB is better positioned to take up new offshore projects in international markets.
The significant improvement in oil prices is aiding its overall business. Schlumberger reported strong first-quarter results, driven by strong drilling activities in North America, Latin America and the Middle East. SLB is targeting net-zero greenhouse gas emissions by 2050.
Schlumberger has an expected earnings growth rate of 57.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 8.6% over the last 30 days. SLB is currently trading at a 25.5% discount from its 52-week high.
Oracle is benefiting from the ongoing momentum across its cloud business, driven by the strong uptake of Oracle Cloud Infrastructure services and Autonomous Database offerings. Solid adoption of cloud-based applications, comprising NetSuite Enterprise Resource Planning, Fusion ERP and Fusion Human Capital Management, bodes well.
Solid demand for the Oracle Dedicated Region Cloud@Customer is anticipated to drive the top line ORCL. Partnerships with Accenture and Microsoft are helping Oracle win new clientele. ORCL’s share buybacks and dividend policy are noteworthy.
Oracle has an expected earnings growth rate of 6.3% for the current year (May 2023). The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 30 days. ORCL is currently trading at a 26% discount from its 52-week high.
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Apply Buy-on-the-Dip Strategy in the Near Term: 5 Picks
Wall Street has enjoyed an impressive bull run for two months after completing a terrible first half of 2022. However, the rally halted on Aug 19 as the three major stock indexes fell sharply. U.S. stock markets may remain volatile in the short term based on a few factors that we will discuss below.
However, each and every dip will be a good opportunity to enter the market to tap mid to long-term gains. We have selected five U.S. bigwigs with a favorable Zacks Rank that are already trading at a deep discount. Further decline in these shares will be a strong entry point. These companies are — Tesla Inc. (TSLA - Free Report) , Airbnb Inc. (ABNB - Free Report) , Fortinet Inc. (FTNT - Free Report) , Oracle Corp. (ORCL - Free Report) and Schlumberger Ltd. (SLB - Free Report) .
Volatility May Reappear on Wall Street
U.S. stock markets may face volatility in the near term. Market participants remained cautious about the Aug 25-27 scheduled annual Jackson Hole Symposium of the Fed. Although no decision on interest rate hike will be taken in the meeting, the central bank will provide an important indication regarding its near-term policy prescription. This year, policies will be centered around mounting inflation.
Minutes of the Fed’s July FOMC also showed that almost all Fed officials had given consent to a rigorous rate hike until inflation reaches at least close to the central bank’s targeted 2% rate. The consumer price index dropped slightly to 8.5% in July from 9.1% in June. However, in absolute terms, inflation remains highly elevated.
The U.S. GDP contracted in the first two quarters of 2022. Consumer and business spending levels are softening. Our latest estimate suggests that total earnings of the S&P 500 Index will rise 1.9% in third-quarter 2022, implying a sharp fall from 7.2% projected at the beginning of July.
Finally, from mid-June lows to Aug 18, the Dow, the S&P 500 and the Nasdaq Composite have rallied 14.7%, 17.8% and 22.7%, respectively. Although these indexes are in negative territory year to date, their recent valuation may result in some profit booking in the near term.
A Buy-on-the-Dip Wall Street
Under the present circumstance, market participants should adopt a “buy-on-the-dip” strategy instead of the “sale-on-the-rise” strategy we saw from mid-January to mid-June. The fundamentals of the U.S. economy remain solid.
Despite near-term expected fluctuations, market valuation is unlikely to revert to the mid-June lows. Moreover, the U.S. economy has several future catalysts.
On Aug 16, 2022, President Joe Biden signed a $430 billion Inflation Reduction Act. The size of the allotted money may rise up to $737 billion in 10 years. The act has provisions of $390 billion to combat climate change. Per the Biden administration, the most important way to restore a clean climate is to encourage Americans to shift toward electric vehicles.
On Aug 10, 2022, President Biden signed the CHIPS and Science Act that will provide $52.7 billion to microprocessor developers for five years. The Biden administration has expressed concerns that the United States had a 37% share in global semiconductor and microchip production in 1990, which drastically dropped to just 12% in 2021.
On Nov 15, 2021, President Biden signed a bipartisan infrastructure act of $550 billion in addition to the previously approved funds of $450 billion for five years. The law aims at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
Our Top Picks
We have narrowed our search to five U.S. corporate giants currently trading at a deep discount to their 52-week highs. These stocks have strong potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Tesla has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues. The global auto industry is gradually moving toward electric vehicles. Tesla is expected to be the largest beneficiary of this trend.
Despite the chip crisis, Tesla reported strong deliveries of 254,695 units in second-quarter 2022, up 27% year over year. Additionally, TSLA’s energy generation and storage revenues are growing, thanks to the positive reception of the Megapack and Powerwall products.
TSLA has an expected earnings growth rate of 74.6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.4% over the last 30 days. Tesla is currently trading at a 28.4% discount from its 52-week high.
Airbnb is riding on an improvement in the travel industry. Continued recovery in both longer-distance and cross-border travel owing to a reduction in travel restrictions is benefiting ABNB’s Nights & Experience bookings. Additionally, growth in Average Daily Rates and Gross Booking Value is acting as a tailwind.
Growing active listings in Latin America, North America and EMEA are contributing well to the top-line. Further, growing sales and marketing initiatives along with continuous efforts to upgrade various aspects of the Airbnb service are helping the company gain momentum among hosts and guests.
Airbnb has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 15.8% over the last 30 days. ABNB is currently trading at a 46% discount from its 52-week high.
Fortinet is benefiting from rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely. FTNT is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network offerings.
Moreover, continued deal wins, especially those of high value, are solid drivers. Higher IT spending on cybersecurity is further expected to aid Fortinet to grow faster than the security market. Also, focus on enhancing its unified threat management portfolio through product development and acquisitions is a tailwind for FTNT.
Fortinet has an expected earnings growth rate of 30% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2% over the last 30 days. FTNT is currently trading at a 31% discount from its 52-week high.
Schlumberger is the largest oilfield services player, with a presence in every energy market across the globe. Being the leading provider of technology for complex oilfields, SLB is better positioned to take up new offshore projects in international markets.
The significant improvement in oil prices is aiding its overall business. Schlumberger reported strong first-quarter results, driven by strong drilling activities in North America, Latin America and the Middle East. SLB is targeting net-zero greenhouse gas emissions by 2050.
Schlumberger has an expected earnings growth rate of 57.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 8.6% over the last 30 days. SLB is currently trading at a 25.5% discount from its 52-week high.
Oracle is benefiting from the ongoing momentum across its cloud business, driven by the strong uptake of Oracle Cloud Infrastructure services and Autonomous Database offerings. Solid adoption of cloud-based applications, comprising NetSuite Enterprise Resource Planning, Fusion ERP and Fusion Human Capital Management, bodes well.
Solid demand for the Oracle Dedicated Region Cloud@Customer is anticipated to drive the top line ORCL. Partnerships with Accenture and Microsoft are helping Oracle win new clientele. ORCL’s share buybacks and dividend policy are noteworthy.
Oracle has an expected earnings growth rate of 6.3% for the current year (May 2023). The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 30 days. ORCL is currently trading at a 26% discount from its 52-week high.