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Buy the Dip: DocuSign, UnitedHealth, Stitch Fix

Recent stock market turbulence has tested investors' go-to trading tactic.

With the stock market bouncing back after a rough first week of December, investors may want to get in on the action and buy select stocks whose share prices have fallen, but have good prospects for future growth.

Yet just because you can buy on the dip doesn’t always mean you should.

That’s the takeaway from The Street’s Timothy Collins, writing recently on Real Money.

“Every time the market dips, all we hear about is opportunities or this name is now undervalued or on sale,” Collins wrote. “Buy the dip isn't simply a catchy saying. Buy the dip has been programmed into our brains since the first day we began trading.”

According to Collins, this is what makes bearish markets or choppy markets so difficult.

“We're conditioned to buy, and we expect stocks to move higher,” he said. “If they don't, anxiety hits us. A myriad of concerns floods our brain because the action is almost counterintuitive. We're pre-programmed to buy, and we expect to be rewarded for doing what we've been taught to do.”

Collins believes this generation of investors are not programmed nor taught how to sell.

“Yes, not wanting to admit being wrong is a factor in holding bags (losing stocks), however, that is rooted in our programming,” Collins noted. “Stocks represent opportunity. Stocks aren't supposed to go down. But they do. And it's okay. It's actually healthy for the long-term.”

Collins takeaway? As an investor, you don't have to buy every dip despite how loud some investors may yell.

“If you felt the squeeze of the past few days or weeks, then watch for a rally to sell,” he said.

If playing your game does mean buying stocks at the dip right now, here are the companies TheStreet’s trading experts are looking at this week.

DocuSign  (DOCU) - Get DocuSign, Inc. Report $143.88 5-Day Performance (-) 42.79%.

Cathie Wood of Ark Investment Management is one investor who isn’t shy about buying at the dip.

Ark purchased 746,964 shares of DocuSign as the e-signature company plunged on December 3rd following its latest financial results.

“The stock cratered on disappointing billing numbers for the latest quarter,” TheStreet’s Dan Weil reported.

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There are more cautious views, of course.

“We are lowering our fair value estimate for narrow-moat DocuSign to $244 per share, from $290,” wrote Morningstar analyst Dan Romanoff in a recent research note.“We have adjusted our model based on near-term guidance, which reduces our growth forecast over the next several years,”

He added that “DocuSign delivered generally solid results, exceeding our above-consensus revenue and profitability estimates while falling meaningfully short on billings.”

In the end, “however, we believe annual guidance released next quarter for fiscal 2023 will serve as a catalyst, negative or positive, for the stock as expectations can be reset further,” Romanoff said.

UnitedHealth Group  (UNH) - Get UnitedHealth Group Incorporated Report $458.98 5-Day Performance 1.79%. 

With the Health Care Select Sector SPDR ETF  (XLV) - Get Health Care Select Sector SPDR Fund Report “holding up well” during the recent market correction (it’s also up 15% on a year-to-date basis), TheStreet’s Bruce Kamich is looking at the top stock in the fund, UnitedHealth Group  (UNH) - Get UnitedHealth Group Incorporated Report.

Looking at a recent daily bar chart, Kamich notes that UNH share prices have continued higher after a September correction.

“UNH is trading above the rising 50-day moving average line and the rising 200-day line,” Kamich said. “The On-Balance-Volume (OBV) line has moved sideways since early August but is starting to show fresh improvement this month. Additionally, the Moving Average Convergence Divergence (MACD) oscillator has narrowed and could soon cross to the upside for a fresh outright buy signal.”

In a weekly Point and Figure chart of UNH, below, Kamich said he sees a potential upside price target in the $614 area. That should represent a good buying opportunity for this health care stock.

“In our October 14 review of UNH, we wrote that "It looks like the stock is "off to the races" again,” he said. “Traders could stay long UNH but raise stops to $425. The round number of $500 is our next price target.”

Stitch Fix  (SFIX) - Get Stitch Fix, Inc. Class A Report $23.87 5-Day Performance (-) 9.41%.

 It's been a rough year for Stitch Fix, with the stock down 60% on a year-to-date basis.

“If anything is primed for tax loss selling, it's this name, said Real Money’s Timothy Collins. “I won't pretend the chart is "good," but it is interesting to see the possibility of a bottom coming into play." The company reports earnings on December 7.

Until the share price gets above $24, SFIX bulls are stuck in a bearish channel, Collins noted.

“The MACD actually appears set for a bullish crossover,” he added. “That's not quite enough to jump into the name yet, but it does put it on my radar as a potential play later very soon.”

“I'm willing to take a small gamble on this one with the knowledge that if I'm wrong, it's going to be a zero,’ Collins added. “There are multiple legs in this, so it may take time to fill, but I'm going to throw it out there and be patient.”