| 5 High-Quality Stocks to Buy the Dip It’s been a terrible week for speculators in low-quality stocks.
Last Sunday, struggling retailer Bed, Bath & Beyond Inc. (BBBY) announced it was entering Chapter 11 bankruptcy. The speed of its wind-down, however, makes it look more like a Chapter 7 liquidation.
And early last week, shares of First Republic Bank (FRC) sank 60% after the firm revealed it had lost $100 billion in customer deposits.
Many high-quality stocks have been taken on the same white-knuckled ride. Shares of self-driving firm Mobileye Global Inc. (MBLY) plummeted 25% after cutting growth forecasts by only 5%. And United Parcel Service Inc. (UPS) sank 10% after missing earnings by a single penny.
This may mark a golden opportunity to buy high-quality stocks on the cheap.
That’s why many of our analysts here at InvestorPlace.com, our free market news and analysis website, have been busy recommending new buys among these fallen angels.
Today, I’m going to show you how those writers have identified five high-quality stocks among these to buy the dip.
Let’s take a look... ADVERTISEMENT This Coming Shockwave Delivers 10X Potential Thanks to a massive convergence of little-known, but highly consequential signals, an extreme market snapback is set to occur... and Luke Lango predicts you could earn 1,000% gains from this unusual situation. Check out the details right here. 1. Sociedad Química y Minera de Chile (SQM) Shares of the world’s lowest-cost lithium miner dropped as much as 25% this week after Chile’s left-wing president, Gabriel Boric, announced plans to nationalize his country’s lithium reserves.
At first glance, that seems like terrible news. Sociedad Química y Minera de Chile (SQM)’s mining contract will expire in 2030, and the nationalization could essentially turn a money-spinner into an ordinary-looking mining operation. We could theoretically see SQM’s 80% return on capital invested (ROIC) decline to barely its cost of capital.
But three things stand in the way. - Chile’s divided Congress still needs to approve the measure. The president’s coalition only holds 67 of the 155 seats, making nationalization an uphill battle.
- Changes beyond 2030 have little impact on SQM’s front-loaded profits. A two-stage discounted cash flow (DCF) model shows that only 8% to 12% of the firm’s value sits beyond 2030.
- SQM will surely use the opportunity to diversify beyond its Chilean roots. Argentina, Australia, and the United States all have viable lithium sources.
It's why the stock continues to hold a place on InvestorPlace.com writer Muslim Farooque’s list of Top-7 Lithium Stocks to Buy.
2. Enphase Energy Inc. (ENPH) Shares of this high-end solar inverter maker saw a similar crash this week after reporting a temporary slowdown in demand. Revenue forecasts missed by 4.9%, sending the stock down 25%.
Josh Enomoto has been covering the story for InvestorPlace.com. He notes that investor pessimism has “cast an unmistakable shadow over what had been a robust, resilient sector” with Enphase Energy Inc. (ENPH) absorbing the brunt of the damage. He also notes that strong European sales essentially cancel out weakness in the California market.
Enphase was obviously too expensive to start. Shares traded as high as 95X forward earnings, thanks to the company’s high-end inverter technology, battery storage systems, and related software systems. Investors were “paying up for quality” without thinking about price.
Yet, lower share prices now make Enphase a reasonable buy again.
Enphase’s disappointing outlook has more to do with lower subsidies in a single state, not a broader issue with its products. And with shares hovering under 40X forward earnings, long-term investors might finally have an attractive entry point. ADVERTISEMENT See How This $5 EV Stock Could Turn $500 Into $20,000 Silicon Valley insider Luke Lango says his contacts are going crazy over a $5 stock that could soar 40X once the iCar goes live. Get the full details here. 3. PNC Financial Services Group Inc. (PNC) Larry Ramer writes at InvestorPlace.com about America’s sixth-largest bank in his list of Seven Stocks That Could Skyrocket in the Next 12 Months. The Pittsburgh-based bank announced excellent first-quarter results on April 14, and Ramer believes shares could surge as much as 80% by the first quarter of 2024.
It’s obviously been a down year for PNC. Shares have fallen 20% for the year and trade 40% below their all-time peak. Many investors are nervously looking around for the next First Republic disaster and punishing any company that looks the part.
Yet, PNC has been unfairly targeted. The company is expected to earn 13% return on equity (ROE) next year, the third highest among major U.S. banks. And its national footprint reduces exposure to any single sector.
That suggests the company should trade at 1.3X book value, a 20% upside to today’s levels. If earnings rise as Ramer expects, the upside will be far higher. 4. Qualcomm Inc. (QCOM) Qualcomm Inc. (QCOM) has seen shares wobble in recent weeks on fears of a semiconductor slowdown. Earlier this month, Samsung warned it could face its worst profits in decades, driven by sagging prices in memory chips.
But we must remember that the low-end memory chip market is distinct from Qualcomm’s higher-end products used in mobile phones, data centers, and Internet of Things (IoT) devices.
In a recent update at InvestorPlace.com, Thomas Niel makes the case that shares of this high-quality stock are now vastly underpriced. Shares trade at 12X forward earnings -- a 25% discount to long-term averages and an unusually low amount for a company generating almost 40% return on invested capital (ROIC). 5. Hanesbrands Inc. (HBI) Finally, my own contribution to this week’s list of “5 High-Quality Stocks to Buy on the Dip” is Hanesbrands Inc. (HBI), the ubiquitous maker of underwear, innerwear, and Champion-branded sportswear.
Shares of Hanesbrands were hammered in 2022 after prices of cotton spiked from $0.80 to $2 per pound. The company is roughly 80% vertically integrated, and it’s virtually impossible to pass all raw material costs to end consumers. A 13% decline in first-quarter 2023 revenues added to the panic.
Nevertheless, we know that 1Q figures will mark a low point for Hanes. First-in-first-out accounting means that high-priced cotton is finally working its way out of its inventory. So, even a minor 3% revenue decline in the second quarter should see a 72% sequential increase in operating earnings. Shares of this dominant underwear brand likely have 2-4X upside from here.
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Most falling stocks keep going down.
My quantitative research has shown that stocks have persistence in month-to-month returns. A drop in one month means a greater chance of a fall in the next. That means cautious investors looking for consistent 12-month gains often wait until a stock has risen for at least six months before jumping in.
Such strategies will always miss the bottom of the market. Waiting a half-year to confirm a rising trend means you’ve missed the bottom by... well... six months.
That means investors buying the dip need to focus on the highest-quality stocks to buy where further downside is limited.
And once shares are bought, investors should put them away and not worry about the near term. Because for companies with wide business moats, fast growth, and large profits, stock returns will eventually come.
Our hypergrowth specialist, Luke Lango, agrees: “When the data says buy... but the sentiment says don’t -- that’s the time to buy."
It’s a classic pattern.
Right now, mainstream financial opinions and Main Street investors are pessimistic…
Yet, the data – the results of an exhaustive study by Luke and his team of data analysts…
Says the exact opposite.
That data is telling us that we’re about to experience a spectacular eruption in the markets. In other words, Luke agrees that it’s time to buy the dip in the best companies out there.
His research has just pinpointed one of the best-positioned companies that could skyrocket from the coming surge.
To get in on Luke’s prediction and see the evidence yourself, click here now.
Regards,
Thomas Yeung, CFA
Markets Analyst, InvestorPlace.com
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