Three Top Stocks to 'Buy the Dip' for Better Returns!

What Does “Buy the Dip Mean?

If you are a regular reader of Money Morning Buzz and our daily 3 Stocks to Watch article you’ve no doubt heard the term “Buy the Dip”.  The represents a simple and usually effective approach to buying stocks that are in long-term bull market trends.

"Buying the dip" is another way to say purchasing a stock after it's fallen in value.  As the stock's price "dips" it may present an opportunity to pick up shares at a lower price with the goal of increasing your future gains, when the stock rebounds to continue its rally.

The concept is a well-known strategy, especially in markets that are at all-time highs, like we’ve seen in 2024.

Here’s a Real-Life Example

We’ll look at NVIDIA since the stock is one of the most popular “buy the dip” names out there.

Let’s just say that I’m an investor that decided that I want to own 300 shares of NVIDIA after the company hit new all-time highs in January, but I don’t want to buy at those highs.

The buy the dip strategy is perfect here.

Let’s look at what would have happened if you followed the strategy in March 2024.

The week of March 4, shares were trading just below $100 at $97.  You could simply purchase the stock at that price and then hold through today and your investment would currently be worth 34.7% more than you paid.

But let’s say that you hold off on buying at the highs and instead draw a line at the price where you want to buy the shares on a dip.

You’ll need to determine how much of a “dip” you want the stock to make before you buy your 100 shares.  That is usually determined by the volatility of that stock.

In NVIDIA’s case, the stock averages multiple 20% declines in an average year as the stock is one of the more volatile in the Nasdaq 100.  Fortunately, investors are always looking for opportunities to buy the dip on NVIDIA, 20% is a fair target price for a dip.

If you used that target – to buy the dip after 20% - you would have targeted a price of $77.60 back in March.

A little over a month later, on April 19, NVIDIA indeed dropped to that price and a little lower, activating your “Dip Price Trigger”, resulting in an investment of $7,760 for your 100 shares of NVIDIA.

Now, fast forward to today.  100 shares of NVIDIA are worth $13,068 at Thursday’s close, but the Buy the dip strategy posts current returns of 68% compared to the strategy of buying the shares at the March highs.

 

What Happens if the “Dip” Continues

Investors can choose to either stick with their first dollar cost averaging strategy or add to their position at the same “Dip Price Trigger”.  In this case you would target another 20% decline after your initial dip investment.

In NVIDIA’s case of using the 20% trigger you aren’t likely to see too many 40% or more drops in the stock to trigger additional investments.

Three Buy the Dip Stocks

Given the current “froth” in the market, there are several stocks that have been leaders that are currently trading at or near their all-time highs.

Let’s look at a few of the stock that I talk about often here on Money Morning for “Buy the Dip” opportunities and Trigger Prices.

NVIDIA

What stock would it be better to start with other than our example stock, NVIDIA?  

NVIDIA stock is currently trading at a Buy the Dip price.  The stock recently traded at a price that is 20% below its January highs meaning that this is a good time to step into the stock.  This price was identified in December as a Buy the Dip target.

In addition, investors will want to avoid putting their entire allocation to NVIDIA to work right now as the stock appears ready to move lower. 

NVIDIA shares are currently battling with their 200-day moving average as investors continue to revalue the stock based on the recent DeepSeek developments.

A break below that key trendline will result in the stock targeting a move to $115 and then $100.  Those are the additional Buy the Dip target prices that investors should consider.

NVIDIA would see considerable support at $100 as a psychological support level and the site of the stock’s support in August 2024 lining shares up for a new long-term rally.

Palantir (PLTR)

Palantir (PLTR) is still high on the “Buy the Dip List”.  Shares rallied more than 300% in 2024, making it the top performing stock in the Nasdaq 100 in 2024.

Looking forward to 2025, Palantir looks to benefit from more contracts with the Government and private sector clients.  That alone puts Palantir on the short list of stocks that many investors want to own in 2025.

Shares recently gave investors a perfect opportunity to “buy the dip” when they dropped from their all-time highs of $85 in December to their January lows of $63.  That pullback represents a perect technical test of the stock’s 50-day moving average AND a 20% healthy correction.  

Palantir has only seen three 20% drops in the last 13 months.  One reason for this is that investors are more actively looking for opportunities to buy the dip on this popular stock.

Palantir stock is now seeing a “buy the rumor” rally ahead of next week’s highly anticipated earnings report.  This opens a twist to the buy the dip strategy.

Palantir’s performance after earnings since the company started trading in 2020 suggests that the shares may move significantly higher next week.  A summary of the company’s earnings history and performance is below.

Investors may want to consider buying shares ahead of next week’s earnings based on the average return of +7% following the company’s last 17 earnings reports.

From there, consider targeting another round of buying when the stock pulls back 20% or to it’s 50-day moving average.

This could happen immediately after next week’s earnings if the report disappoints or follows another rally higher after the report.  Either way you will be adding to the stock as part of a healthy correction. 

Here’s the chart of Palantir with current trigger prices.

Meta Platforms

This is a true test of the Buy the Dip strategy. 

META shares are trading at their all-time highs following the company’s recent earnings report.

The stock initiated its current rally after CEO Mark Zuckerburg announced its intention to increase spending on its AI endeavors.  The stock is up 8% for the week and 20% for the past month leaving some investors feeling left behind with that FOMO feeling.

Shares in Meta are trading in overbought technical conditions suggesting that the stock is due for a correction or consolidation.  The stock’s Relative Strength Index (RSI) just reached an official overbought signal as it hovers over 70.

The last time Meta stock saw an overbought signal like this was in October 2024.  Shares declined roughly 8% before turning higher on their next 16% move higher.

In addition, Meta is also trading at $700, a number that is likely to provide resistance simply due to its round-numbered quality.

Following the round number theme, $675 and $650 are the two levels that stand out as Buy the Dip targets.  While these prices don’t offer the larger discounts that NVIDIA and Palantir may, the stock is also rising very much on its continued strength of revenue and earnings growth, something that makes the stock a standout in this market.

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