In Focus: Buy The Pullback in These Stocks
Updated: Apr 4
At the start of every pull back there are the calls to buy the pullback and there are those mocking the calls to buy the pullback. Hopefully, you've been investing long enough to understand that those mocking the calls to buy the pull back have no idea what they're doing. If you're relatively new to investing allow me to explain why you should always be looking to buy the pullbacks.
I have an exercise that I tell people to do in order to convince them to start investing. I ask them to pull up a chart of the Dow Jones Industrial Average. I then tell them to mark the chart on the year they were born with a 1, and then to mark where we are now with a 2. It's no surprise, the 2 is always in a higher position than the 1.
If the chart allows them, I tell them to zoom in and really follow the path of the Dow Jones Industrial Average from the year of their birth until the present. I tell them to note the dips and pull backs. I explain to them that in those moments of dips and pullbacks the financial markets felt like they were in collapse, but we still made it to point 2, which is much higher than point 1.
Markets and stocks pullback, it’s just the way it goes. The smart money sees a sale when the markets pull back, as they can now buy what was a $50 billion company for $35 billion. The dumb money, they mock the "buy the pullback sentiment" for whatever their reasons are.
Recently there have been a few pullbacks in some very noticeable names, and some not so noticeable names. For investors that missed out or were waiting for an opportunity to add to their positions, the pull back in some of these names have created an investment opportunity.
Big Name Pullbacks
Tesla (TSLA) and Twitter (TWTR) are two stocks that have popped up on my radar. I've spent the last two weeks of this blog discussing both of the companies. Tesla is down 29% since its $883.09 per share close on January 26, 2021. Twitter traded to a high of $80.75 on February 25, 2021, and it's been in a slide ever since. Twitter share's are down 24% since hitting $80.75.
Many have given their reasons as to why Tesla has been in a slide. CNN believes it has to do with Bitcoin, increased competition, and that the stock was initially overbought. A CNBC article points to the market’s worry over increased interest rates.
Twitter's selloff has been a little more difficult to pin down. The stock sold off following the company's ban on former President Donald Trump and bottomed at $45.93 per share, but then the stock rallied and eventually traded to the $80 mark I noted earlier. Twitter’s CEO, along with other big tech CEOs took a grilling from regulators last week. The selloff in Twitter could be caused by fear of U.S. lawmakers regulating the social media industry.
I won't get into all the reasons to add Tesla and Twitter to the buy lists because I've covered them recently. There's nothing we can do about rising interest rates, they can't stay at these rock bottom levels forever. The professional investors over the past 10 years have been very good at investing around whatever the current issue of the day is, and they'll likely do the same with interest rates.
Another pullback that caught my eye is Palantir (PLTR) I discussed Palantir after its IPO when it was trading under $10 a share. I wrote that it was a buy then as one of the best data plays in the market, and five months later I'm still all in on Palantir.
Palantir hit the open market at $10.00 a share back in October of 2020. It was a confusing few weeks as investors didn't know what to make of the company, but it didn't take long for Wall Street to figure it out, and they acquired shares rapidly which sent the stock to $45.00 a share. Since trading to the $45.00 high the stock has pulled back 49%.
It appears investors still aren't sure what Palantir is, Is it an undervalued tech company with rapid growth potential or an overvalued consulting firm with minimal growth potential? I think it's the former, and for investors who think the same way, the pullback has provided a great opportunity to add to the position or re-enter if you took profits.
Cathie Wood, who we discussed last week while gushing about Tesla recently purchased 1.2 million shares of Palantir for her Ark Investment Management Fund (ARKK) I've come to admire Cathie's view on tech because it is outward, she is thinking far beyond the next quarter or two, which so many hedge funds aren't capable of doing. So if Cathie Wood is investing in Palantir it's likely she believes there is something there long-term that has yet to play out.
After spending more than a decade in insurance, I know the industry is ripe for some technological innovation and Lemonade and Root offer that. From following Tesla for more than a decade, I know there's a lot of doubt in the beginning of an automobile venture, and it takes a long time for people to buy in. Just think, we were in the middle of 2019 and there were people that thought Tesla could go bankrupt. The Lordstown Motors story isn't pretty now, but how will the story read in a decade from now?
Lemonade, Root, and Ride all have their own reasons for pulling back in price, and if you're an investor who likes the pullback play and likes to buy and hold, I think those are worth investigating.
For the Millionth Time, Buy the Pullback!
Don't be the investor chasing stocks as they make new highs and gather media attention. Be the investor that buys the pullback despite the people mocking the idea of buying the pullback.
Remember the two points on the chart, the year you were born and now. If you're old enough to read this, then the markets are way up since your birth year, with many dips, panics, and sell offs in between. The stock markets don't go straight up, but the past has shown that they do go up.