Buy these stocks now, before they bounce back

 

Next to the worst days the stock market has ever had, Monday wasn’t all that bad. That, unfortunately, is the best that can truly be said of it. Monday’s stock market decline was not panic selling, but something much worse, a reasonable reaction to global economic news, in this case, an increasingly harmful trade dispute. Stocks have sold-off before when President Trump’s team has put tariffs in place, but previous sell-offs now look like mere warnings—shots across the bow—compared to the selling seen on Monday and Wednesday. The difference, in qualitative terms, is that the selling wasn’t specifically in affected industries, but across the board. The heaviest selling occurred in the very stocks that have risen fastest and farthest this year. In other words, the most desirable stocks to own.

And so, we see that in stock market land, a crisis is always opportunity, at least for those of us who have kept a bit of powder dry. After the selling this week, some excellent deals have emerged on good stocks that had simply become a bit too pricy. I have identified here the ones I believe to be the most promising.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Taiwan Semiconductor (TSM)

Taiwan Semiconductor is a company I haven’t considered much in the past, but one I suddenly find hard to ignore. This is a huge chip-maker (market cap $185 billion), but it isn’t an exciting AI chip-maker. In fact, the company is the world’s largest player in the foundry service industry, which means that it manufactures chips based on specifications and designs specified by other companies. Before you turn up your nose at this assembly-line work, however, consider that Taiwan Semiconductor has an operating margin of 40%—higher even than NVDIA’s impressive 36%. With that in mind, TSM’s valuations (t P/E: 15.8, f P/E: 13.6) are remarkably low. Finally, the scandal sheets are saying that Qualcomm (QCOM) will be switching from current supplier Samsung to Taiwan Semiconductor to manufacture its Snapdragon 800-series smartphone processors, which would be a huge win for the company.

Chart courtesy of www.stockcharts.com

NVIDIA (NVDA)

NVDIA is a longtime favorite of mine. This company has nearly always had the best GPU technology, and as the need for computing power has evolved, the greatest demand has shifted from CPU technology to GPU technology and the many variations of the same that are now needed for voice and face recognition, self-driving cars, recursive neural networks, etc. There has been some news of overproduction in the current market cycle, but that’s a short-term issue, while the company’s long-term prospects continue to look brighter and brighter. One wave may be weaker than the last, but the tide still rises. Those who sell NVDA today at $235 will very likely be buying it back next this time next year at $335.

Chart courtesy of www.stockcharts.com

Alibaba (BABA)

Alibaba was hit by a double-whammy on Monday, as it was struck by the backlash against high-flying stocks and by concerns that President Trump’s trade war very well may escalate to the point that real damage is done to the Chinese economy. Still, Alibaba ranks among the companies I’m least concerned about, due in large part to its unusual revenue stream which relies more on business to business transactions than any other ecommerce company. The big players in China have pockets deep enough to wade through any short-term disruption of global trade.

Chart courtesy of www.stockcharts.com

Square (SQ)

Square has had an incredible year, as it continues to attract small business owners with its easy-to-use, simple-to-understand billing system, then upsells them with everything else a small business owner could need. Many companies stumble at this stage of development, as they negotiate, with varying degrees of success, the all-important transition from gadget maker to service provider, but Square has actually gained momentum. The next stage of growth may take longer, as Square attempts to move from offering a smattering of business services to be becoming true business management software, but the company is cash rich, and that, of course, makes all transitions smoother. Another transition the company will be making this year, if all goes well, is to profitability.

Chart courtesy of www.stockcharts.com

Netflix (NFLX)

This is not a reversal of my opinion of Netflix, so much as a public service announcement about an extraordinary price move. Granted, Netflix is a frothy stock, but even so, a move of nearly 6.5%, in a single day, on essentially no news is rare thing, and for those of you interested in this stock, I don’t want you to miss out on a buying opportunity out of sheer stubbornness. I’m not interested, personally, because now, as ever before, there is a long period of rapid growth already priced-in, only now, with so much relatively new competition, there are a great many things that could go wrong, bringing about slower than anticipated growth. That’s my position. Up until now, it has always been wrong, so take it with as much salt as you like.

Chart courtesy of www.stockcharts.com

Symbols: BABA NFLX NVDA SQ TSM
Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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