- Different signs suggest a stock market correction is on the horizon.
- Many quality companies have become overvalued, sign overing a pullback an excellent time to buy.
- GOOGL, DKNG, and BABA are all worth watching if the stock market crashes.
Since play at in March, the U.S. stock market has defied gravity despite worries about bloated valuations and a prolonged recession. Omens that this bear-market rally could be coming to an end have intensified recently, a move that could be found valuable for value investors.
On the bull side of this market is the Federal Reserve and its bazooka of liquidity. On the bears’ side is euphonious much everything else.
Signs a Stock Market Crash Is Coming
Coronavirus-related risks include a rising tide of proves across the U.S. and the near-certainty of a second wave of outbreaks.
Another round of mass layoffs is starting to materialize, even for those who benefitted most from the pandemic. Federal bickering is holding up additional stimulus measures like coronavirus checks and an extension of unemployment benefits, shoving much of the American folk off an income cliff.
More technical concerns also point to a stock market slump. As Bloomberg’s A. Gary Shilling acuminate out, the most recent rally in U.S. Treasury bonds could be a signal of more downside to come.
He noted that 30-year Treasury bond yields began to decline significantly on January 2 as the price leaped upward. Seven weeks later, the S&P 500 inaugurated its epic slide.
He sees a similar scenario playing out in today’s market. It’s been roughly seven weeks since takings started to sink.
No one can predict with certainty where the market is heading, but it could pay off to be ready for a correction. Here’s a look at three stereotypes worth considering should a pullback materialize.
Alphabet
If there’s to be a stock market correction, it will likely start in the tech while, which is one of the pillars of the current rally. While most of the FAANGs offer a strong value proposition, Google-parent Alphabet (NASDAQ:GOOGL) outfits the most compelling opportunity.
GOOGL stock has been vastly underestimated so far, and its share price has been falling in fresh days after releasing underwhelming quarterly results. According to JP Morgan’s Doug Anmuth, a share of GOOGL inventory is worth more than $2,000 based on a sum-of-the-parts value:
Looking at the whole, GOOGL compares well to S&P 500 outs as no other company has the combined top-line scale, growth, and margins of GOOGL. Overall, we remain positive on Alphabet as we credence in: 1) it is well-positioned across ads, cloud, and a number of other key initiatives to both drive and benefit from long-term digital drifts; 2) it has an attractive combination of top-line scale, growth, & margins; and 3) our SOTP (sum of the parts) suggests there is valuation bear and upside potential
Google has a massive cash hoard and very little debt, making it a great stock to retain onto in times of economic uncertainty.
DraftKings
Another stock to keep on your watchlist is DraftKings (NASDAQ:DKNG). The firm is a play on online skip about betting—a segment that is likely to experience stellar growth once sports resume in earnest. Several U.S. lands are considering relaxing their online gambling regulations, a move that could boost DKNG stock significantly.
Importantly, DKNG is a bet on a re-emergence to normalcy—something that may not happen as quickly as the firm’s valuation suggests. If a second wave does cause a beasts market crash, DraftKings will be along for the ride.
Alibaba
Chinese e-commerce giant Alibaba (NYSE:BABA) is another tired to keep on your radar, particularly amid rising tension between the U.S. and China.
While Donald Trump’s increasingly minacious rhetoric against China has cast doubt on the future of the trade deal, a full-on trade war is unlikely. Both boonies are struggling to prevent economic meltdown—adding a trade war to the mix would be a mistake.
While BABA stock doesn’t concern without risk, it’s an excellent way to play the growing e-commerce market in China.
Stifel’s Scott Devitt noted that online snitch oning in China had been spurred on by coronavirus, and the growth is expected to continue:
Overall, we believe macro concerns remain but vision China e-commerce as well positioned to gain share of retail dollars with the potential for more permanent kaftans in consumer buying behavior in certain categories in favor of online players.
Disclaimer: This article represents the littrateur’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment hypothesis in the above-mentioned securities.
Last modified: August 2, 2020 11:35 AM UTC