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Buy the Dip: Nvidia, Disney, Amazon

With the rough start to 2022, Wall Street looks to some familiar names for opportunities to buy the dip.

Recently, TheStreet’s Paul Price offered a useful tutorial on how to “buy the dip” on Wall Street. We’ve included some of those tips in recent “Buy the Dip” outlooks.

Here’s a few more tips from Price on buying low when planning for your shares to rise high.

Think low – really low. Swapping modestly depressed shares for severely pummeled stocks is one of the best ways to recoup what was lost and much more.

“Also, don’t forget to trade “sort of undervalued” for “deeply undervalued,” Price said. “Your goal is to take advantage of the biggest gaps between where assets are and where they should be.”

Sell put options. Think about selling puts on stocks you'd like to own cheaper while volatility is elevated and put premiums are unusually generous.

“Options can be your friend,” Price said. “Not only can puts give you a good chance to make some money while rolling valued stocks into your portfolio, but the premiums are a good source of quick cash to buy more undervalued assets.”

Price also advises extending put option maturities out a year or more, to January 2023 or January 2024. “You'll pocket the most money, allow for huge margins of safety and have plenty of time for things to get back to normal,” he said.

With those tips in mind, let’s take a look at the latest “buy the dips” from TheStreet.com’s trading experts.

Nvidia  (NVDA) - Get NVIDIA Corporation Report $268.63 – 5-Day Performance (-)10.89%. Semiconductor stocks – Nvidia included – have been one of the best performers in the past year.

Now, with growth stocks taking a major market hit, how do traders play a stock like NVDA, one that has traded up 97% over the past year, but is now down 8.84% since the start of the new year?

First, there’s the possibility that Nvidia stocks had to decline after a banner year, especially with so much uncertainty about microchip production and delivery.

“Late last year, analysts at Wedbush Securities called Nvidia's stock expensive and expressed concern about its valuation while maintaining that the chipmaker's fundamentals are undeniably excellent,” reported TheStreet’s Vidhi Choudhary. “Currently, Nvidia is the largest chip company in America by market value.”

With size on its side, Nvidia may be uniquely more capable of riding out turbulent market storms than other semiconductor companies.

“Nvidia saw its shares rise 127% for the year,” said Jim Cramer on Mad Money in late December. “Nvidia is leaving the industry in the dust as it powers forward its best chips for gaming, autonomous driving, high-performance computing and more.”

Finally, TheStreet’s Stephen Guilfoyle is including Nvidia in his 2022 semiconductor “basket of stocks.”

“With semiconductors, there’s inelastic demand for what they sell,” he said. 

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Disney  (DIS) - Get Walt Disney Company Report $155.91 – 5-Day Performance (-)0.54%. Disney has been a chronic underperformer of late, down 10.15% over the past three months.

Is that reason for concern? Not to Bruno Reis, equity research contributor for DM Martin's Research and a contributor to .com.

“Disney performed poorly in 2021,” Reis said in a new research note on Disney. “But this leaves long-term investors room for a new investment opportunity in 2022.”

Like other entertainment companies, COVID hit Disney's theme parks and cinema revenue hard. Also, problems with content production impaired the company's streaming business. “And after seeing earnings misses and declining streaming subscriber growth, many analysts have lowered their projections for the company,” Reis said.

Yet hope springs eternal. “Looking at average monthly DIS returns since the stock's IPO, we can see that, historically, the first two months of the year have seen the highest returns,” Reis noted. “The average return for January has been 5%, followed by 4% in February.”

Reis also notes that DIS racked up a 12.8% loss in 2021, making it one of the Dow Jones' worst performers. The stock passed $200 in March, but it ended December at $155. “Even with last year's poor performance, this could be a great opportunity to “buy the dip,” Reis said. “This drop gives investors the potential to buy shares at prices below what DIS traded for after its 2020 rally.”

Reis said that streaming and box office earnings should rise for Disney.

“One of the main catalysts for the DIS decline has to do with the company's streaming business,” he noted. “Disney+ new subscriber growth slowed in 2021, even falling short of the company's own projections. That has caused shares to depreciate significantly since Disney's latest earnings reports.”

“But new content is a lure for new subscribers,” Reis added. “With production returning to normal post-COVID, Disney+ should see growth in subscription revenue.”

In addition, the virus put a dent in Disney's box office earnings. As movie fans return to cinemas around the globe, the company's entertainment business should pick up, too.

“In fact, if parks and movie theaters return to pre-COVID attendance levels, the company could add $26 billion in revenue in those segments alone (based on the last quarter before the pandemic began),” Reis added. “That would positively impact DIS's valuation.”

Amazon  (AMZN) - Get Amazon.com, Inc. Report $3,209 – 5-Day Performance (-)5.82. After handing investors a gain of more than 70% in 2020, Amazon stock barely moved in 2021.

In fact, it was the weakest FANG stock of 2021.

Yet there’s a wellspring of enthusiasm for Amazon in 2022. Justin Post, an analyst at Bank of America issued a January 9th research note with a buy rating on Amazon with a price target of $4,450 (which would translate into a 30% premium from the company’s current share price.)

TheStreet’s Ciro Ribeiro isn’t so sure about AMZN, even though he issues some qualifiers.

“AMZN stock underperformed the market in 2021, and investors shouldn't expect it to suddenly ramp up overnight,” Ribeiro said. “That’s the case even though retail sales during the holiday season showed surprisingly positive preliminary results, Amazon’s CFO Brian Olsavsky has warned that fourth-quarter results will also bring “several billion dollars of additional costs." Still, Wall Street is confident things are about to change.”

Yet Ribeiro believes the market overestimates the relevance of Amazon's e-commerce segments and fails to recognize the importance of every other business the company has, especially AWS (Amazon Web Services).

“For instance, revenue generated by AWS grew 33%, 29%, 29%, and 28% in the first, second, third, and fourth quarters of 2020, respectively,” Ribeiro said. “For the first, second, and third quarters of 2021, those figures were -- in order -- 32%, 37%, and 39%. A similar phenomenon occurred in Amazon’s “Other” segment, which is mostly advertising.”

In addition, the Seattle-based behemoth has made several investments in its infrastructure, warehousing, and logistics networks. “Although I don’t have great hope that Amazon’s fourth-quarter results will show significant changes compared to its most recent reports, I believe the company's e-commerce segments should regain profitability by the end of 2022,” Ribeiro noted.

Right now, Wall Street analysts are unanimously bullish on the stock.

“Amazon was picked as Goldman’s top internet stock for 2022,” Ribeiro said. “It’s the main bet of other big firms -- including UBS, Wells Fargo, and Cowen & Co.”

“Of the 27 top analysts covering AMZN, all of them give it a strong buy recommendation, with prices ranging from $3,800 to $4,700. The average target price is $4,130, which would be a 23% upside.”