Two weeks ago, the equity indices were having a moment. Tech stocks suffered the hardest hits and for no reason. I’m sure the media could pin the problem on something someone said somewhere. In reality, the macroeconomic fundamental conditions have not changed. This was just normal price action, including for pandemic stocks. Red days happen along every rally, especially one that has gone on this long.
We are now closer than ever to having the U.S. government unleash almost $2 trillion dollars into the economy. It’s hard to short a wave of cash this big coming into the system. The bears will have to fight the Fed, fight the tape and find a new reason to crash it. Until then, the stock market will rally and the dips are buying opportunities.
Last week, the bears had the onus of maintaining control. It looked good for a while but then Monday it all fell apart for them. They failed to maintain the lower-high trend in the indices. Indices went on to break new records. The Nasdaq is still lagging but the bulls could regain momentum this week. They need to build more on what they did last week. Their job is to establish footing above support levels.
If that happens then the rally will continue and the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) will exceed $400 per share. I sound too optimistic because the numbers are big. But if you look at the scoreboard, we are almost there. Nothing has changed, so I don’t expect anything to start happening differently on Wall Street.
For this market to crash, there will need a black swan event. Those are unpredictable and they can happen in any market, not just this one. Being this high is not reason enough to short it. Today’s three companies have fallen off investor radars. They ripe for starter positions before others notice them too. They are:
Pandemic Stocks to Buy: Teladoc (TDOC)
Teladoc definitely benefited from the pandemic of 2020. There was a shortage of healthcare and people were in panic mode. The convenience of getting answers on the fly from the comfort of your own home was too enticing. Usage of the service skyrocketed and so did the stock.
Last July, I suggested sniping an entry on a pull-backs to $180 per share. Within three weeks, TDOC stock came within a $2 of that. Investors who pounced benefited from two 20% rallies. If they held it through January they got 60%. Unfortunately the recent correction was exceptionally harsh on it. But the good news is that it found footing at exactly the same base as before. This makes for multiple successful tests of the buyers below $200 for share. It is time for a rinse-and-repeat statement that Teladoc is worth owning here.
The thesis could even be technical for a swing trade back toward $240 for share. TDOC is also a good hold for the long term. The habits that we created during the pandemic will persist for years. There are a lot of facets to the service other than viral. The company has branches to explore and expand, like mental health.
The whole world has gotten used to doing everything online. This plays right into the hands of this company’s long-term success. The fundamental metrics support this notion. Their revenues are increasing exponentially. It is not cheap because the price of sales is 23. This is a lot of forward expectations that the stock owners currently have. But the growth rate could be fast enough to grow into it. It deserves the benefit of the doubt on that front.
Inseego (INSG)
Inseego stock just took a beating after the earnings report. It fell an additional 40% on the headline. This is after it had already dropped 35% from the February highs. In total it now sits 50% off those levels. The more important part about this is the fact that it held support.
Last week and under extreme selling pressure, INSG stock held the same bottom from November. This is an important statement from the fans. They are willing to step in in front of a buzz saw to catch it. The selling in the Nasdaq was extremely harsh. Even great companies like Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) fell 20% or more.
This is clear indication that INSG stock has already shed most of the fat. The rest is mostly meat on the bone, so this makes it an attractive investment for the long term. Inseego is a pandemic stock because going digital includes telephony. Finally the rollout of 5G is ongoing and that suits its growth targets. In fact, according to the company earnings report, 30% of its hardware sales is from 5G equipment. They are in a transition mode and that can create some confusion on the report cards.
The drop on earnings was not because they delivered bad results. In fact, they blew them out of the water. Management gave cautious forward guidance and investors threw a fit. Often companies under promise so they can over deliver, That’s how they manage expectations. I don’t blame them because Wall Street investors these days are very fickle. They are trading memes and ignoring logic and facts.
INSG stock at these levels carries very reasonable risk. The reward for the next three years is definitely worth it. Technically it is also attractive because it could be a swing trade opportunity back to $14 per share. First the bulls need to hold above $10 per share. This gives them the opportunities to rest so they can tackle the resistance lines above.
I am confident that in the future I will be using unconnected Wi-Fi in my house. The closest thing to this reality is 5G technology. Denying the upside potential in this company so soon is betting on a reversion in the digital trend. That is not realistic.
PayPal (PYPL)
Our last pick of the day is definitely not the least of the opportunities. I favor owning PayPal for the very long term. They have their thumb on all the fintech pulses. Their upside opportunity ticks all the boxes. This is definitely a pandemic trade because it sat right in the middle of it last year. PayPal helped people move money around when they were in quarantine. They also stepped up to the plate and made instant transfers available for free. I personally used this to to send money when other methods failed.
Fundamentally, PYPL stock is not cheap but that is not a concern. They are growing their income statement rapidly and they cannot do that on a tight budget. Skimping while trying to grow will yield bad results. In this case, the 71 price-to-earnings is not a deterrent. However the price-to-sales matters more and it’s only 14. This is in line or close to mega-cap tech stocks like Facebook (NASDAQ:FB). It’s also about half as aggressive as Tesla.
While value is not going to be a price driver, it’s definitely not a detriment either. The price action in PayPal and Square (NYSE:SQ) has been disappointing of late. The old dogs like Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP) are setting records.
This could be an opportunity for the long term. It can also be a swing-trade opportunity for more active traders. PYPL stock bounced well off of the $225 support. This is the third time after the breakout from it last December. The job for the bulls is to maintain a higher-low trend and not fall too low under $240 per share. Doing this could open the door for another 10% rally.
Even if they don’t, PayPal makes a lot of sense for the future. We will rely on electronic transfer of assets forever. That fact is getting support from other developments. Take the extreme rally in Bitcoin, for one.
Fintech is no longer a fad, it’s a real thing. Regardless of what the individual opinions are, we should embrace change and try to learn how to deal with it. PayPal makes that possible with their Bitcoin segment of its business. They are ready to embrace whatever financial direction the world takes.
When something looks this good, more companies will want a piece of it. Competition is coming like Stripe, for example. They are making news as the next big unicorn.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.