Weekly Market Preview: Reasons to Buy the Dip And Three Stocks To Watch For the Coming Week
“What, me worry?”
That was my response this week to a friend who asked about the continued decline of the stock market, suggesting (as he had done) it was time to throw in the towel.
In particular, he was asking about the apparent panic selling that occurred Friday afternoon with less than an hour left in the regular trading session that not only pushed all major indexes towards their worst start to a December in ten years, it placed both the Dow and the S&P 500 (both down more than 1%) into negative territory for the year. Meanwhile, the Nasdaq Composite Index, though it remains positive for the year, lost more than 3% Friday.
In my response to him I added that if you believed, as I do,that it’s always good to bet on America, then why not buy the dips and wait for the eventual recovery? That said, it is true that the dip, particularly during the past three months, has been tough to stomach.
But there are still clearcut winners out there, such as the once high-flying FAANGs. Collectively, Facebook (FB), Amazon (AMZN), Apple (AAPL) and Google (GOOG , GOOGL) have taken massive hits to their market caps, each losing an average of almost 20%.
As of this writing, only Amazon and Netflix are still in positive territory for the year. Beyond the political headlines, tightening of trade policies and rising interest rates are seen as risks to tech valuations. Long-term value investors who are searching for the best market deals to buy on the dip should pounce on this recent decline. From my vantage point, the fear has provided bulls with an opportunity to load up on some of their favorite stocks at discounted share prices.
That’s not to suggests every cheap stock should be bought. Understand the difference between a value stock and a potential value trap remains important. But in this instance, if you liked the FAANGs at multiples that were at certain time of the year, say 20 points higher, then you should love them now. Over the next several days, I will provide reasons why each of the FAANGs should be owned, not traded.
As for this week, here are three stocks reporting earnings and I’ll be keeping an eye on these.
Stitch Fix (SFIX) – Reports after the close, Monday, Dec. 10
Wall Street expects Stitch Fix to earn 3 cents per share on revenue of $357.97 million. This compares to the year-ago quarter when earnings came to 4 cents per share on revenue of $295.56 million.
What to Watch: Stitch Fix shares have been slashed in half, falling some 50% from a 52-week high of $52.44 to its recent value of around $26 per share. Competitive pressures from the likes of competitive pressures from Amazon (AMZN) has been cited as reasons why investors have exited their positions. On Monday Stitch Fix CEO Katrina Lake, who has done a solid job growing the company’s active clients base, must convince a skeptical analysts community that the subscription fashion retailer can be profitable.
Costco (COST) – Reports after the close, Thursday, Dec. 13
Wall Street expects Costco to earn $1.62 per share on revenue of $34.72 billion. This compares to the year-ago quarter when earnings came to $1.45 per share on revenue of $31.81 billion.
What to Watch: The largest warehouse retailer in the U.S. will report first quarter fiscal 2019 earnings Thursday after the closing bell. The company is expected to report a strong quarter on the back of a 10% rise in November net revenue, while same-store sales grew more than 12% in the U.S. Despite operating in a highly competitive and mature retail industry, Costco is still finding ways to grow its membership total and, at the same time, getting its club members to spend more. And that powerful combination had made COST stock a winner despite the threat of Amazon.
Adobe (ADBE) – Reports after the close, Thursday, Dec. 13
Wall Street expects Adobe to earn $1.88 per share on revenue of $2.42 billion. This compares to the year-ago quarter when earnings came to $1.26 per share on revenue of $2.01 billion.
What to Watch: Owing to net-new subscribers and the growing adoption of its enterprise services, expectations are high for Adobe’s Creative Cloud segment, which is approaching annualized revenue of $6 billion. The growth has been driven by better-than-expected subscription adoption among government and educational institutions. And with some 90% of the company’s total revenues being of the subscription-based variety Wall Street expect not only a top- and bottom-line beat Thursday, but also upside guidance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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