“Buying the dip” has worked for S&P 500 investors during this bull market. And now investors may be wondering which stocks battered in September offer the greatest opportunity.
Analysts see 55% or more gains in 11 worn-out stocks in the S&P 500, S&P Midcap 400 and S&P Small Cap 600 indices, including healthcare Invacare (IVC), real estate agent GEO group (GEO) and consumer cyclical Las Vegas Sands (LVS), says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and: MarketSmith. All of these stocks are down 10% or more from where they traded when the S&P 500 peaked on Sept. 2 — sending them into a correction, or worse.
Opportunistic investors may think it’s time to buy the dip. The market’s rapid sell-off left stocks $925 billion, or 1.8%, cheaper since its September peak, Wilshire Associates said. That’s enough discount to entice bargain hunters.
Smart long-term investors know to focus on the companies and stocks with increasing profits, sales and share prices. That’s where you make the most money in the long run. But it’s hard to blame investors who look to short-term sell-offs as a way to try and make big profits.
“Buying the dip has been a good, even great strategy for the past decade, but sooner or later it won’t be,” said George Ball, chairman of Sanders Morris Harris in Houston.
The siren song of buying the dip
Buying stocks that are falling in value is a risky proposition. But it’s one that has worked recently, at least with the S&P 500.
Each reloading on the S&P 500 after it fell below the 50-day moving average this year resulted in an average gain of nearly 4% in just a week, says a July analysis from Bespoke Investment Group. Compare that to the S&P 500’s usual weekly gain of just 0.06% since 1945.
Weekly average returns after downward crosses show how strong the buy-the-dip impulse has been this year, Bespoke noted.
And buying the dip has paid off in the longer term as well. Buying the S&P 500 after falling below its 50-day moving average this year yielded a one-month gain of 5.7%.
What dips Wall Street likes the most?
Nearly all of the analysts’ top picks for dip buys are battered small caps. Seven of the 11 stocks that have fallen 10% or more since September that analysts see the most benefit in are small companies.
Take Invacare as an example. Shares of the $200 million medical device distributor are down a crushing 37.5% from a September 2 market high of 5.36 per share. That’s not just a 10% correction, but a full-blown bear market-type decline.
Still, analysts hope the stock will rise more than 80% in 12 months to 9.67 per share. Analysts expect the company to make a small profit in the fourth quarter of 2021. And they are calling for a return of sales this year. Analysts expect Invacare’s revenue to rise nearly 4% to $880.9 million in 2021.
Some are buying the dip opportunities in S&P 500
However, not all buy-on-the-dip favorites are money losers. GEO is a profitable real estate investment trust with a market value of $850 million. Real estate is a hot area in the market and a leading S&P 500 sector. And yet, the small-cap real estate company’s shares are down nearly 11% from the market’s September high to 7.11. However, analysts believe the company will be worth 79% more in 52 weeks than it is now. Much of that is based on the assumption that the Florida-based company will earn an adjusted $1.37 per share in 2021, an increase of more than 5%.
What about the big caps? Las Vegas Sands, a casino operator with properties in Macau, is the only S&P 500 stock to fall 10% or more from its September high in the market, which analysts expect to fall by 55% or more. to rise. Following a crackdown on gambling by the Chinese government, shares fell 15% from September 2 to September 37.28. But analysts think it will go to 58.07 in a year. And if they’re right, that’s almost 56% up.
Obviously, buying on the dip is a risky business. Analysts may be forced to lower their expectations. But right now, speculators love their odds.
“While the S&P 500’s ability to repeatedly bounce off its 50-day moving average this year has been impressive and even historic, enjoy it while it lasts. We can guarantee it won’t last forever,” Bespoke said.
Analyst’s Top ‘Buy The Dip’ Candidates
Here, S&P 1500 shares are down 10% or more as of September 2, 2021, peaking at 55% or higher, according to analysts.
|Business||ticker||Table of contents||From 2 Sept. market high||Sector||Implied top *|
|GEO group||(GEO)||S&P 600||-10.7||Property||79.3|
|medifast||(OF)||S&P 600||-10.1||consumer goods||77.3|
|WW International||(WW)||S&P 600||-13.7||Consumer Goods||67.1|
|American Silica Holdings||(SLCA)||S&P 600||-14.7||Energy||65.1|
|Simulations Plus||(SLP)||S&P 600||-14.7||healthcare||64.2|
|United States Steel||(X)||S&P 400||-18.8||materials||63.7|
|PROG participations||(PRG)||S&P 400||-11.0||Financial||63.1|
|Las Vegas Sands||(LVS)||S&P 500||-15.3||Consumer Goods||55.8|
|Nu Skin Enterprises||(naked)||S&P 400||-17.9||consumer goods||55.1|
Sources: IBD, S&P Global Market Intelligence, * — to analysts’ 12-month price target
Follow Matt Krantz on Twitter @mattkrantz
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