The countdown to the election is ramping up the anxiety levels on Main Street, and therefore, Wall Street is worried. Stock prices have rallied so far that investors have a lot on the line and it’s a matter of math. Depending on who wins the Presidential Election there could be drastic changes in corporate and individual incomes. And without getting political, I will simple say that Wall Street does not like change. However, volatility this high should bring opportunities for stocks to buy.
Overall, the CBOE Volatility Index (INDEXCBOE:VIX) has maintained high levels and for good reason. Having said that, no one really knows how investors will react to the election results. In 2016, the bullish reaction was a surprise. Thus, I am approaching this election much like an earnings event. We do not know how markets will reaction to either scenarios. I am certain, however, that there will be relief rallies if the thing passes peacefully. That said, I am counting on Americans to stay calm.
Eventually, there is good reason to expect that investors will calm down and resume normalcy. Stocks want to rally. And while 2020 has already thrown us a few curve balls, we’ve dealt with them well. This should not change, so getting ready for the aftermath means looking for opportunities to grab on any weakness. That said, all three companies below make for very speculative bets anyway.
So, let’s delve into these three serial disappointers. They have had so much potential, but have so far failed to deliver. They are:
Now, let’s take a closer look at each one.
Beaten Stocks to Buy on the Next Dip: Intel (INTC)
I remember the days when Intel was the king of the mountain and Advanced Micro Devices (NASDAQ:AMD) was all but dead. Nvidia (NASDAQ:NVDA) wasn’t even in this two-way battle then. Now the roles have flipped, and Nvidia is the king of the future. AMD is also crushing it, and INTC stock is languishing in muck. In fact, the low that Intel made last week on earnings was just 9% off the Covid-19 crash low.
Moreover, management reported a horrendous quarter, especially relative to the successes everywhere else. They delivered bad news on growth, margins and competition, so there is really nothing to lean on for hope. The only asset left for this stock is its legacy and now the team has to be in panic mode. These usually make for good binary bets that they will finally make good changes.
When I say “binary” I really mean it in its true coin flip sense. It’s insane to keep expecting the same outcome, yet here we are. This is important because then investors would know not to put all the eggs in this basket. The stock is risky enough without even considering the externals risks from politics and tax law changes. Stocks will likely have a tizzy in November, and this one would be one to pick up off the floor. It doesn’t have much farther to go in any case.
IBM (IBM)
For years I’ve shared my dislike for IBM’s management team. They’ve promised change for years without delivering anything tangible. Wall Street was strangely accepting of one of the longest declining growth rates ever. Finally, though, IBM replaced their CEO Ginni Rometty — but with an insider. And from the looks of this earnings report, nothing has changed. It was a disaster.
IBM has been hanging on to old concepts that have so far failed to gain momentum. I remember as a kid reading about the prowess of machine learning, which now we call artificial intelligence (A.I.). However, this has not contributed to the bottom line like IBM had hoped. Meanwhile, management missed the massive shift in technology stock trends. And now they are scrambling to stay relevant.
They could learn a thing or two from Microsoft (NASDAQ:MSFT). They made the turn with great leadership, and the case makes for a good simile. Overall, IBM has the blue prints and they should just do it. But nothing they said this quarter hints at that happening. Most of the new giant tech companies like Alphabet (NASDAQ:GOOGL,NASDAQ:GOOGL) and Salesforce.com (NYSE:CRM) grew up in the new normal. Thus, IBM, like MSFT, needed to steer the ship into the pure cloud and subscription trends.
But within terrible news could lie the opportunity. This fall season is likely to challenge all equities and there will be stocks to buy. IBM is so bad now that it could have longer to rally if we shrug this uncertainty off. Most other mega-tech stocks are still 50% to 150% above their March lows.
Collectively, IBM has little room to fall before it hits its pandemic panic levels and it’s close. Buying a full position ahead of the messy November is insane, but I could sell puts now to start a partial position and leave room to add later.
Beaten Stocks to Buy on the Next Dip: AT&T (T)
I come into AT&T with a negative bias. I’ve tried to do business with them for my household and hated it. And in the past three years, I’ve canceled their cell, television and cable packages — each time with ridiculous problems. I think the way that T stock is acting, it’s proof that I was not alone. Nevertheless and emotions aside, there might be an opportunity for patient investors into AT&T next year or the next.
It still has a massive income stream so it only needs time to streamline its operations into shape. Meanwhile, stock owners can enjoy the 7.5% dividends it currently yields. But while this is the carrot, it is also the potential disaster. And if for whatever reason management cuts it, then this thesis is broken.
Additionally, the U.S. consumers have so far kept up the spending. If they change, then this could put a crimp into AT&T model. Therefore, T stock might be more sensitive to the stimulus headlines this year. This doesn’t change the bet for the long term. But it should prep investors for the potential short term whipsaw that could occur.
Of the three stocks to buy above, I like this one the least. I would be more inclined to choose INTC or IBM instead. They make for better stocks to buy into a messy holiday season. And at least they could have tailwinds from their sectors continuing the massive rally into next year.
I know it sounds crazy to expect that mediocrity breeds opportunity, but the concept is simple. There is no reason to think that stocks will go below the pandemic crash. Back then, the entire world was shut down and neither companies nor people were earning income. In turn, the scenarios forward will not be this drastic. The worse case scenarios into year-end should hold above the March lows. These three losers have less relative risk, which makes them stocks to buy. Heck, two of them are almost there already.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.