The bad news just keeps stacking up in the economy and in the financial markets. Consider where investors stand right now facing these numbers.
--- Inflation stands at a four-decade high at 7.9% in the U.S.
--- Crude oil is selling for over $100 per-barrel.
--- Consumer sentiment, as measured by the University of Michigan Consumer Sentiment Index is at a decade-long low.
--- The Dow Jones Index is down 8.71% on a year-to-date basis.
The news isn’t getting better as a European land war dominates the headlines and as economists are starting to utter the “S” word – stagflation.
A case in point. On March 11, Goldman Sachs cut its U.S. and European economic growth outlook, as the vibe on Wall Street is decidedly downbeat.
"The Russia-Ukraine conflict has dented our previously optimistic views on Europe’s economic and asset market outlook,” said Zach Pandl, co-head of foreign exchange strategy at the investment bank. “Largely due to the sharp increase in energy prices and the potential for additional supply disruptions, our Europe Economics team has revised down their baseline forecasts for 2022 Euro area GDP growth to 2.5% from 3.9%,"
Goldman cut its U.S. GDP outlook by from 2.00% to 1.75%, and notes a recession is clearly on the horizon.
"This forecast implies below potential growth in 2022 Q1 and 2022 Q2 and potential growth for 2022 overall," wrote Jan Hatzius, Goldman's chief economist. "And we now see the risk that the U.S. enters a recession during the next year as broadly in line with the 20-35% odds currently implied by models based on the slope of the yield curve."
With caution in mind this week, here are several stocks TheStreet’s trading experts are looking at as potential “buy the dip” opportunities.
Archer-Daniels-Midland ADM $84.31. 5-day performance 2.90%).
This is more of a pullback in soft commodities right now, as Archer-Daniels has largely traded up so far in 2022.
“Markets have had a rough ride since the start of the year,” TheStreet’s Ed Ponsi noted. “Despite a mid-week rally, there is still no clear indication of a bullish change in direction.”
Right now, the Nasdaq is weaker than the S&P, as its 50-day moving average has already crossed beneath its 200-day moving average. “This could be interpreted as a bearish momentum signal,” Ponsi said.
“Amazon is a perfect example of the wrong place to be right now,” Ponsi said. “The 20-1 stock split that drove the stock above $3,000 after [its announcement] was likely driven by retail investors. It'll be interesting to see if institutions use that pop as a selling opportunity.”
So what's the right place to be right now? Ponsi has an idea.
“We saw some sharp pullbacks in hard commodities last Wednesday. Crude oil, copper, and gold all lost significant ground. Earlier this week, we trimmed our position in coal producer Peabody Energy (BTU) - Get Free Report,” he said. “Agricultural commodities also lost ground on Wednesday, but the damage wasn't as pronounced. Corn and soybeans fell, but not sharply.”
One way to play the pullback in soft commodities is via Chicago-based Archer-Daniels-Midland (ADM) - Get Free Report The company, founded in 1902, has its hand in nearly every aspect of agriculture, including processing, storage, and transportation.
“ADM reached an all-time closing high of $83.97 on March 7, and has pulled back since then,” Ponsi said. “The stock's bullish trend is still intact.”
ADM has demonstrated support on both its 200-day and 50-day moving averages. “The stock's RSI (relative strength index) had been overbought since March 2nd, but last week's pullback has ADM back in neutral territory,” he added.
Ponsi’s plan is to enter a half-sized long position in ADM at current levels, and will purchase the other half on a pullback to the mid-70's.
“As usual, an exit plan is necessary,” he said. “In this case, a break below the 50-day moving average will generate an exit signal.
Energy Select Sector SPDR Fund XLE $76.49. 5-day performance 1.24%.
One “buy the dip” opportunity can be found in the energy sector, which is attracting significant attention in mid-March.
“I think the whole complex of mining, materials, and energy is at the point of being overbought,” said Mark Sebastian on TheStreet. “The energy exchange-traded fund, Energy Select Sector SPDR Fund (XLE) - Get Free Report, is trading near $78. At this point, I think it eventually gets to $85 or even $90.”
But in the near term, Sebastian believes a dip back below $75 is in the cards.
“I would be a buyer of the March 18, $75 puts for less than $1.50, looking to sell at $2.50-$2.75,” he said.
His trade? Buy to open one XLE March 18 $75 put for $1.50.
Amazon AMZN $2,980. 5-day performance (-)0.81%.
“In full disclosure, I sold my stake in Amazon last week. I am considering a re-entry,” Said TheStreet’s Stephen Guilfoyle. “I think that a closer look might be useful.”
The stock did trade lower this past January, but last Monday (March 7) was the lowest close for AMZN since June 2020.
“Monday was the fifth (or so) time this year that the stock has approached a 50% retracement of the March 2020 through November 2021 rally,” Guilfoyle said. “The stock has long since surrendered its 50- and 200-day simple moving averages, all three components of the daily MACD are in negative territory and both the Relative Strength Index and Full Stochastics Oscillator are very close to reaching a technically oversold condition.”
Amazon also announced last week plans to close all 68 of the firm's physical bookstores, pop-up shops, and 4-star stores in large cities.
“Those of us who wondered just what Amazon was doing in the physical retail space outside of Whole Foods in the first place lost some patience,” Guilfoyle noted. “Amazon, for their part, mentioned in that release, [that they] will continue to work on other brick and mortar concepts. That was enough for me.”
Walmart (WMT) - Get Free Report and Target (TGT) - Get Free Report are both large brick and mortar retailers that have embraced an elevated focus on e-commerce. Walmart trades at 21 times forward looking earnings, Target trades at just 14 times. Amazon, aside from AWS and advertising which has driven nearly all of the firm's margin of late, is an e-commerce retailer trading at (even after all of this selling) 56 times forward looking earnings.
“So why would Amazon focus on increasing its exposure to a business less highly valued by investors?”, Guilfoyle asked. “No. Close the bookstores and just walk away. Groceries are enough.”
Those issues aside, Guilfoyle believes it shouldn’t take too much to get Amazon back on track.
“The e-commerce business drives the advertising and services businesses as well as Prime membership,” he said. “There's plenty to like. However, as far as market sentiment is concerned, valuation is now an issue where it hasn’t been for years, and FANG or no FANG, by the usual metrics used to measure valuation, Amazon has not been sufficiently trimmed. Amazon is the most expensive FANG name.”
Altogether, Guilfoyle says there’s “not enough there,” on Amazon – at least over the short-term.
“I don’t want to get involved until I see clear signs of support, which I don't just see yet,” he said. “The fundamentals outside of valuation are an ally. That said, valuation is not an ally, and the technical data just doesn't give me enough.”
“To get long ahead of confirmation of support, I think at this time, would be gambling,” he said. “I still like AMZN, just not now.”
Snowflake, Inc. SNOW $201.50. 5-day performance (-)5.63
“Cloud company Snowflake delivered a fiscal Q4 2022 earnings beat that did not please investors,” he noted. “Despite more than doubling revenues year-over-year for the full year and quarter, Snowflake stock cratered on the back of a timid outlook for fiscal 2023.”
Besides seeing Q4 revenues of $384 million more than doubled, Snowflake also reported very strong customer retention and a noticeable increase in large customers -- those with significant budgets that can make more of a difference on Snowflake’s future revenues.
“The backlog is also looking very healthy,” Martins said. “Between Q4 of fiscal 2021 and Q1 of fiscal 2022, as pandemic fears and disruptions reached a peak, remaining performance obligations climbed by only $100 million. This time, the sequential increase was a much healthier $840 million.”
Pulling back the lens, Snowflake’s business seems to be doing just fine. “The company has been able to capitalize on cloud momentum and the top-line execution has been impressive,” Martins said.
Prior to fiscal Q4 earnings, priced at around $265 per share, Snowflake stock traded at a mind boggling 2023 price-to-sales multiple of 40 times. “I am talking P/S, not P/E,” Martins said. “One would need to look at fiscal 2027 to find forward P/E of 60 times that could start to look reasonable — and barely so.”
So, is SNOW stock a buy on this Thursday’s dip? It’s hard to tell for sure, Martins said.
“Momentum and sentiment has shifted, and it could take some time for shares to find their footing once again,” he noted. “Those who choose to jump in today may need to check their risk aversion and tolerance for losses first, as the move could be speculative.”