Stocks have taken a beating this week as investors have shied away from risk assets on fears of the rapidly spreading coronavirus out of China.
Since last Friday, the S&P 500 is down 0.36%, the Dow is down 0.45%, and the Nasdaq is down 0.18%.
But while the Nasdaq is down the least of the major exchanges, nearly one-third of the Nasdaq 100 is in a correction or worse.
Stocks in the index like Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), eBay (NASDAQ: EBAY), Cisco (NASDAQ: CSCO), and Starbucks (NASDAQ: SBUX) are all in negative territory for the week.
However, the weakness looks like a buying opportunity for two stocks in the index.
Chad Morganlander, portfolio manager at Washington Crossing Advisors, has his eye on Cisco, which is down nearly -4% over the last week.
“If there was one company that we would be buying and that we’ve owned for many years, that would be Cisco Systems,” Morganlander said, adding that Cisco “has a PE multiple of 15 times and enterprise value to EBIT of roughly about 12 times.”
Cisco’s 15 times forward price-to-earnings is below that of the S&P 500’s 18 times forward multiple.
“We believe that even with an embedded growth rate of 2% or 3% over the long run, you can get a favorable return,” Morgnalander added. “That also has a dividend yield of roughly about 2.9%.”
Wall Street rates Cisco shares a Buy and analysts’ consensus price target indicates nearly 11% upside over the next twelve months.
Piper Sandler chief market technician Craig Johnson is bullish on another stock in the index.
“Take a look at the chart of Netflix,” Johnson said. “We chose it number one because they’ve already reported earnings, so if you’re looking to de-risk some of your tech names, this will be one of them.”
Netflix reported earnings last week, beating analysts’ expectations. However, slower-than-anticipated growth in Netflix’s U.S. user base underscored growing fears about competition in the streaming market.
The streaming giant said it added 8.3 million net new international subscribers in its latest quarter and 420,000 customers in the U.S., while Wall Street had expected 618,000 new domestic subscribers and 7.2 million international users.
But while many are concerned that Netflix’s slowing subscriber growth is a signal that competition is weighing on the streaming pioneer, Stifel analyst Scott Devitt pointed out that Comcast’s recent big video subscriber losses are a good sign for Netflix.
“Comparing Netflix to introductory pricing and/or inferior over-the-top products as a justification for worrying about the competitive climate is missing the fact that the cable, telecom, and satellite video industry (where all the money is) is shrinking with no end in sight,” Devitt said.
The Stifel analyst rates Netflix shares a Buy and has a $390 price target on the stock – 12% higher than the price as of this writing.
Still, the disappointment on the new subscribers metric sent the stock down -3.6% on January 22, and Netflix shares are currently down -0.53% over the last week.
But the stock’s weakness looks like an opportunity.
“The technical setup looks interesting – the shares are moving above their 50- and 200-day moving average,” Johnson added. “You’re clearing support at $340. It looks like the stock has got about 10% or more upside back to that $385 level, and that’s a name that we could be buying in here at this point.”
