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"Buy the dip." You hear that nearly every day from talking heads on any network.
And it's true: Buying a dip can be great advice for investors. It can be a way to build an invincible stock position. Buy the dip, and you can wake up one day with all the profits at less than 50% of the total cost the other guy paid.
What you don't hear so much, because it's not pleasant and sunshine-y, is how "buy the dip" can be an investor's epitaph.
In other words, under no circumstances should you buy the dip indiscriminately, on any old stock, just because it looks to be "on sale."
There are a couple of beaten-down companies right now that I'm hearing disturbing advice on out in the mainstream media - the "buy the dip" cheerleaders are going to end up costing people serious money here before long.
So, sell these stocks just as soon as you can...
These Were Darlings - Now They're Skunks
Zoom Video Communications Inc. (NASDAQ: ZM) and Peloton Interactive Inc. (NASDAQ: PTON) were two of the rock-star stocks of the bizarre coronavirus pandemic-fueled bull market. The whole "everyone stay at home all the time" thing was admittedly great for their bottom lines, and both stocks notched stellar, triple-digit gains in a matter of months.
The pandemic, obviously, has ebbed and surged and changed all along - spikes and lulls, restrictions put in place, lifted, and put in place again.
And it's true that a lot of offices, mine included, are still pretty empty; a lot of workers are still remote, at least a lot of the time.
That "Is the pandemic over... or what?" uncertainty has meant that both of these stocks still have just enough life left in them to be, well, dangerous.
Into this comes the omicron variant. When news of its spread first broke on the day after the U.S. Thanksgiving holiday, markets tanked, and they spent a lot of the next week tanking, too. ZM and PTON, though, booked modest gains in quite a few of those down sessions as the speculators out there thought, "Hey - maybe omicron means the pandemic is definitely on and these stocks will go ballistic again."
The first major private study on omicron, conducted by South Africa's largest health insurer, suggests the omicron variant is less, not more, dangerous than alpha, beta, and delta. Anecdotes and dispatches from hospitals all over the world quote doctors as saying their omicron wards now "feel" and "sound" different than previous variant surges; the hiss of flowing oxygen and the regular beeping of ventilators is conspicuously absent, they say, as are desperation and despair.
It's early yet, but it's entirely possible omicron will be a good thing for ending the acute, emergency phase of the pandemic; it's possible a more contagious but less severe disease gets us to "endemicity" faster.
Omicron's theoretical severity aside, leaders all over the West, President Biden included, have largely ruled out the kinds of massive, economy-crushing lockdowns we saw in the spring of 2020.
None of this is enough to put Peloton and Zoom out of business; I expect they'll go be around for years to come.
But are they must-own, rocket-ride stocks anymore? No.
Are they worth owning at this point? No.
Should you buy them on the dip? Hell no.
Neither company is particularly compelling on the innovation front anymore. Peloton did just add a boxing program to its list of services, but... come on. There's no "there" there on the earnings and performance fronts, either. Pelton tanked more than 10% on Friday, just the latest disappointment in a disappointing month that's seen the stock lose something like half its value. Investors are starting to question Peloton management's repeated assertions that they could keep growing in a reopening economy. That doesn't actually go far enough: Investors have straight-up called B.S. on Peloton execs.
Similar deal with Zoom. This stock is down 27% over the past 30 days and nearly 52% over the past year. No one should be buying these dips. In fact, Zoom's biggest news catalyst is that heel of a tech CEO who fired 900 employees on a Zoom call. It was compelling; it was horrifying; it was cringe inducing... but it didn't do much for Zoom itself.
My recommendation, first of all - sell ZM at market. Sell PTON at market.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.