These 2 stocks lagged in July, but trader say last month’s weakness is this month’s buying opportunity. This is why you may want to consider these stocks now.
Stocks look poised to end the first week of August on an up note after a strong July that saw the S&P 500 gain 1.7%.
Healthcare, real estate, technology, and utilities stocks led the market higher last month, with the healthcare sector rising nearly 5% in July, real estate gaining 4.6%, technology rising 3.9%, and the utilities sector adding 4.3%.
Stocks like Moderna (NASDAQ: MRNA), DexCom (NASDAQ: DXCM), Monolithic Power Systems (NASDAQ: MPWR), and HCA Healthcare (NYSE: HCA) saw massive gains, returning 50.5%, 20.7%, 20.3%, and 20.1%, respectively, in July.
Not all boats were lifted last month, however. Financials dipped half a percent, while the energy sector dropped 8.3% on weak oil prices. Stocks like Carnival Corp (NYSE: CCL) and Las Vegas Sands (NYSE: LVS) dropped 18% and 20%, respectively, as the COVID-19 delta variant slowed near-term travel bookings.
But traders say that a few of July’s laggard stocks look primed for breakouts now.
Washington Crossing Advisors cofounder and senior portfolio manager Chad Morganlander said there’s one such stock that ended July in the red that looks like a good bet now.
“What we would suggest you do is avoid the low-quality names at this point in the market cycle and look at a company like Baxter (NYSE: BAX),” Morganlander said.
Baxter International, a medical supplies company, dropped 5% in July and is down more than 3% over the last week after the company reported earnings and on reports that Baxter’s $144-per-share bid to acquire medical device company Hill-Rom (NYSE: HRC) was rejected.
Even still, Morganlander argues that Baxter has low debt, high visibility, and is “consistently growing [and] consistently profitable,” making it a good buy now.
“They have roughly $13 billion in revenues and they’re growing,” Morganlander said. “And they’re going to be growing in a rather consistent manner. The valuation makes sense also, trading at a forward-looking [P/E] of 19 times. That’s what you want to buy at this point in the market cycle.”
Oppenheimer’s Ari Wald says there’s another under-the-radar name that’s sparking his interest now: Digital Turbine (NASDAQ: APPS).
Digital Turbine shares dropped more than 19% last month after a move by Google (NASDAQ: GOOGL) looked like it might hurt the company. Digital Turbine helps companies monetize their mobile content, particularly on apps, and Google said that beginning in August, it will require new apps to the Google Play app store to be published with the Android App Bundle, which some investors believed would be a negative for the company.
However, Digital Turbine said in a blog post that it has been preparing for this move since 2019 and that it would have no material impact to its customers and partners.
“You want to be tactical, you want to buy pullbacks, but you want to buy in when there’s long-term strength behind it, when there’s macro conditions favorable for those themes as well,” Wald, the firm’s head of technical analysis, said.
“What separates it from the other stocks is that there’s macro trends that support it,” Wald added, pointing to Digital Turbine’s high growth profile and resiliency amid volatile rates and commodity prices.
“After the big run-up it had at the start of the year, it corrected very sharply from February to May and now it’s building a base above its 200-day moving average and we think showing signs of turning up,” Wald said. “For us, the key level is $62. That’s the 200-day average. For traders, I think you place your stops there, but otherwise, it checks all the boxes, it’s also pulled back, there is opportunity here and with it, some longer-term strength behind it.”
