The 7 Best Stocks to Buy on a Dip
Investors looking for the best stocks to buy on a dip have plenty of options, depending on how they think of the term “dip.”
The dip can suggest a market dominator that is trading near its low, or it can be a stock that has bounced recently following an extended downtrend. The best stocks to buy on a dip could even be those that have defied the broader market to deliver a stellar performance in 2022. In the latter case, even a modest pullback may offer a chance to purchase shares at a slight discount before the next leg up.
Today’s list of the best stocks to buy on a dip has examples of all of these. Whether trading at a steep discount or taking a momentary breather, these stocks all have the potential to deliver outsized short- and long-term profits for investors who are ready to move some cash off the sidelines and buy the dip now.
|TAN||Invesco Solar ETF||$80.55|
To say investors were disappointed with tech giant Amazon’s (NASDAQ:AMZN) third-quarter results is an understatement. Shares are down more than 10% since the Oct. 27 announcement.
Among investor qualms were lower-than-expected Q3 revenue, slowing cloud growth and an underwhelming forecast for the holiday quarter.
Even the online retail and cloud services giant is feeling the sting of inflation. On the bright side, energy prices have come down meaningfully from their peak and there are signs that inflation is easing. While this helped boost stocks since October, Amazon has not been a beneficiary of the broader market rally.
Yet, if the market continues higher in the short term based on continued economic optimism, AMZN stock should eventually move higher with it, especially if the company ends up beating its conservative Q4 guidance. Of course, in the long term, investors will likely look back on today’s price levels as a screaming deal in the stock.
Catalyst Pharmaceuticals (CPRX)
Catalyst Pharmaceuticals (NASDAQ:CPRX), which develops drugs for rare diseases, is a buy-the-dip candidate that has bucked the broader market downtrend, with shares jumping 140% so far in 2022.
Catalyst’s outperformance this year is largely due to the company’s strong financial results, which indicate rapid uptake of its drug, Firdapse.
The Food and Drug Administration approved Firdapse in 2018 for the treatment of Lambert-Eaton Myasthenic Syndrome, which affects around 3,000 people in the U.S., including 1,400 adults who are undiagnosed or misdiagnosed.
Firdapse remains the only approved treatment in this rare disease market, and patients tend to stay on the medication once they start taking it.
In the third quarter, the company reported revenue of $57.2 million, up 59% from a year ago. Strong Firdapse sales also helped the company beat analysts’ earnings estimates by a wide margin, reporting 26 cents per share versus their average 19-cent estimate.
For the full year, analysts are expectingearnings to jump more than 45% to $210 million and EPS to surge nearly 100% to 73 cents. In 2023, they are calling for revenue growth of 18% to $248 million and earnings growth of 20% to 73 cents per share.
CPRX stock is trading at 19.5 times next year’s earnings estimate, a very low valuation for a successful drugmaker. Expect shares to continue higher as the company captures more of the Lambert-Eaton Myasthenic Syndrome patient market and expands its rare disease portfolio.
Despite the generally dreary U.S. ad market, Spotify (SPOT), is growing impressively.
Despite high inflation and poor ad market trends, SPOT delivered positive free cash flow of 40 million euros last quarter.
Spotify’s average revenue per user last quarter was only 0.53 euros. In the longer term, I believe that the company will find ways of generating even better results.
SPOT stock is down 28% in the last three months and 67% in 2022, bringing its forward price-sales ratio to a very low level of slightly over one ($14.82 billion market cap/.average 2023 rev estimate of 14.13 billion euros or $14.65 billion).
Invesco Solar ETF (TAN)
The Invesco Solar ETF (NYSEARCA:TAN), a proxy for the solar energy industry, has taken investors on a wild ride in 2022.
Shares peaked in mid-August, following the passage of the Inflation Reduction Act, which included billions in clean energy incentives. However, the stock has given a chunk of that back, trading closer to $80 today.
It appears that the retreat is based on two main fears. The concern that the Uyghur Forced Labor Prevention Act will hurt the American solar industry next year and that higher interest rates will hurt rooftop solar demand in the U.S.
As I’ve stated in the past, given the tremendously pro-solar sentiment of the Biden administration, I do not expect it to enforce the Uyghur Forced Labor Prevention Act in a way that will significantly damage the solar sector.
Further, many companies whose stocks are owned by TAN such as GCL-Poly Energy Holdings and Daqo New Energy (NYSE:DQ) generate much more of their revenue from outside of America than within it.
Finally, the rooftop sector does not represent a majority of the U.S. solar industry.
SunPower (NASDAQ:SPWR) provides solar panels globally. Shares reversed lower in September and now sit below their September high. But they’ve also rallied 26% in the last month.
The company should get a big boost from the EU’s upcoming mandate of solar panels on all new homes and buildings starting in 2030. In the U.S., the Inflation Reduction Act, which will implement 30% tax credits for all residential solar installations for the next decade, will give rooftop solar a big lift.
As I mentioned earlier, I believe concerns about higher interest rates hurting solar panel demand are overdone. The balance sheets of American households remain quite strong, according to Fitch Ratings. The firm called U.S. consumer finances “robust,” noting, “Household debt service and leverage continue to be relatively low compared with historical standards.”
Meanwhile, in the U.S. and even more so in Europe, electricity prices have risen sharply, greatly increasing consumers’ financial incentives to install rooftop solar panels. SPWR and its competitors should benefit meaningfully from this trend.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG), which develops hydrogen fuel cell systems, is down 47% so far this year.
Shares have not yet shown signs of putting in a bottom, making this one of the riskier of today’s best stocks to buy on a dip. However, the industry has huge growth potential and the company’sannual business update, scheduled for Jan. 4, 2023, could provide an upside catalyst for the stock.
Between 2021 and 2031, the global green hydrogen market is expected to grow at a compound annual rate of 46.5% to $31.6 billion. And recent industry deals show the sector is indeed heating up.
For instance, in August, Plug said it struck a deal to provide 10,950 tons of liquified hydrogen per year to Amazon. The online retail giant, which already uses Plug Power’s fuel cells to power its electric forklifts, plans to use liquified hydrogen to fuel transportation and building operations beginning in 2025.
Morgan Stanley believes Plug Power “will be a leader in the green hydrogen ecosystem.” The firm rates shares “overweight” with a $48 price target. That implies an upside potential of more than 200% from current levels.
InMode (NASDAQ:INMD), a maker of radiofrequency-based medical products used in cosmetic procedures, delivered beat-and-raise Q3 results on Oct. 27.
Shares initially popped following the announcement but have since fallen 8% from their post-earnings peak.
On Oct. 12, before InMode reported its Q3 results, investment bank Jefferies initiated coverage of the name with a “buy” rating and a $40 price target. The analyst said “continued market growth, higher outside the U.S. penetration, share gains and pipeline contributions” should help InMode exceed analyst expectations.
With a forward price-earnings ratio of just 13.8, put INMD on your list of the best stocks to buy on a dip.
On the date of publication, Larry Ramer owned shares of PLUG and INMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
More from InvestorPlace