Before we get to today’s write-up, we must first acknowledge what happened on Wednesday, Dec. 1. The price action on Wall Street was shocking, but not from the size of the drop that happened. What was very surprising was the speed buyers turned into sellers. Going into the close, stocks that were up made a u-turn and collapsed. This contributed to the list of stocks to buy today.
However, we must also make sure that we still have the same macroeconomic assumptions. Therefore, we will spend a few minutes exploring the sudden change of heart on Wednesday. Federal Reserve Chair Jerome Powell spoke, but he did not cause this, or the U.S. dollar would have had a stronger day. And bonds prices would have fallen but they rallied hard.
The other headline that broke out involved omicron news. We found out that the U.S. now has cases of it. However, I also challenge this notion because so-called Covid stocks also fell precipitously. If investors feared lockdowns, then Zoom (NASDAQ:ZM), Netflix (NASDAQ:NFLX) and Roku (NASDAQ:ROKU) stocks would have spiked. These were the beneficiaries of the first waves of the pandemic, yet they also had a horrific day. They all fell and by much larger margins than the indices.
Something else was in play and us mere mortals will probably find out in hindsight. Regardless, it doesn’t matter “why” stocks fell. Instead, we will focus on finding the levels to trade. This is at the heart of the list of stocks to buy I am sharing today. But since we just stated that we could be missing clues, we should temper our conviction.
Except for the small-caps, the indices are still near highs. The Russell 2000 ETF has already corrected 13% from its high already. Therefore, new positions in these three stocks to buy should be partial. Moreover, those already long and in pain should skip adding at this point. If we are indeed missing critical pieces of the puzzle, I’d want to have some dry powder.
The common thread that ties today’s stocks to buy is that they have strong fundamentals. All three are in viable areas so they have sizable runways ahead. They are:
- Visa (NYSE:V)
- Rocket Mortgage (NYSE:RKT)
- Palantir (NYSE:PLTR)
Stocks to Buy: Visa (V)
Source: Charts by TradingView
The 2020 lockdowns taught us that we need financial transactions to be electronic. Therefore, investing in stocks that facilitate them makes sense. However, for the past four months, great stocks like Visa, MasterCard (NYSE:MA), PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) are falling machetes.
There’s nothing intrinsic about their business that is deteriorating. This is most likely investors resetting expectations because of a change in sentiment. The rally out of the pandemic bottom perhaps was too fierce. Wall Street has a nasty habit of overshooting in both directions. We should expect the other side of the swing on the pendulum.
Therein lies the opportunities of finding these great stocks to buy on the dips. But as much as I like the fundamentals, I like the support levels even better. Visa stock is now at 12-month lows, so there should be buyers lurking. There is current support below from October’s 2020 correction. And then V stock enters the pandemic “V” crash zone. There is no logical reason to expect it to go there.
Nevertheless, I caution against jumping all in at once or adding to current positions. We need more information about what the indices will do into the holidays. Fundamentally, this is not an expensive stock and it’s getting cheaper every day.
It has a long history of expanding its profit-and-loss statement. Investors have no reason to expect this will change soon. Visa doubled its net income in six years to $12 billion. It is on solid financial footing and management earned the benefit of the doubt.
Rocket Mortgage (RKT)
Source: Charts by TradingView
The 2008 financial debacle crippled the real estate market. Giant banks crumbled and 465 of them failed. It wasn’t a surprise that the refinance business came to a screeching halt. Home values collapsed, so there was no equity to feed the borrowing.
This is exactly the opposite scenario we have here. Now homes are more expensive than ever, so Rocket’s business is in hot demand. Also, mortgage rates are at lows and the industry is booming. Home values are once again helping feed consumer spending.
RKT stock, in spite of all of this, can’t hold its rallies. It has been systemically falling to its all-time low. At some point, investors on Wall Street will realize its financial statements are strong. Revenues now are 2.4 times that of just two years ago. They are also profitable with reasonable financial valuation metrics.
Perhaps adding to the investor hesitation is the fact that the Fed started tapering its purchases. There are also conversations of rate hikes coming next year, which are exacerbating the fears. The Federal Reserve does not control lending rates at the retail level. Nevertheless their actions with the overnight rates can push mortgage rates up.
I bet that we are far from this happening. Rocket’s business should still have strong demand in 2022. At these levels, there’s likely easier upside opportunity than much more downside risk.
Source: Charts by TradingView
Another major ah-ha moment that the world had during last year’s lockdowns was the need for data. Companies moved their businesses online, so the digitization movement accelerated tremendously. Data collection rates exploded higher, and human brainpower will need help processing.
This is a perfect scenario for what Palantir does, and it does it well. They have quickly built up a large business with government and commercial businesses. The company is not new, but it is new to Wall Street, so it has some proving to do.
Investors take their time getting comfortable with newer concepts. Artificial intelligence services like Palantir’s will become an absolute necessity for all businesses that want to be competitive. Currently, using AI was more of a novelty, but that won’t be the case for too long. The data that companies are collecting are useless without intermediary machines processing it.
This is a young team but everyone on it sounds incredibly confident with what they do. Since its IPO, entry opportunities under $20 per share have delivered profits. I don’t expect PLTR stock to spike like it did in January. However, I am optimistic about its long prospects. They nearly tripled their revenue in three years. But the financial metrics are not yet a selling point. Investors will need to have faith in the leadership.
Even with prospects as good as this one, I would still be conservative. The market actions of late lack reason. We are in a new era on Wall Street and we still don’t know what happens during bad stints. This is the time to stay patient so not to go all in before a correction. I expect that this week’s shakeout to pass, but I am willing to sit it out.
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Source: Investor Place