Don’t blame dip investors for being slightly out of balance in March, as the Russia invasion of Ukraine dominates the headlines and throws global economies – and financial markets - into turmoil.
Energy market gyrations, in particular, continue to vex investors.
Crude oil started the month trading at $108.65 a barrel before surging above $120 and then retreating below $100. They’ve started the week on the upswing again. Considering oil was trading below $70 a barrel only last December, current prices represent a big number that contributed to stock market anxiety.
“We all know that sky-high energy prices aren't helpful when it comes to our already out-of-control level of inflation, so it seems odd that equity futures would be hanging on as well as they are,” TheStreet’s Bob Byrne reported.
The slight decline in oil prices last week appears to have added some stability to the markets – but not enough to satisfy Byrne.
“While there is no way I'd be looking to step in front of this level of momentum, I'll be more than a little surprised if crude can hang on to its current gain without first back-testing levels around $100,” he said. “Suffice it to say that stocks, and the inflation outlook, would benefit from oil dipping back under $90.”
With investors buoyed by a rebounding stock market (the Dow Jones Industrial Index was up 5.50% last week), buy the dip traders may want to kick some tires on these stocks this week.
Phillips 66 PSX $78.77. 5-day performance (-)2.49%.
Investors looking for a refiner that's pulling back toward a good-looking support zone, should take a look at Phillips 66 (PSX) .
Byrne is a fan of PSX this month.
“It's important to understand that, as a refiner, PSX is unlikely to move with the major integrated and exploration-and-production stocks,” he said. “Simply put, don't expect PSX to track the Energy Select Sector SPDR ETF (XLE) tick for tick.”
However, with support near $80, Byrne will be looking for any dip beneath that level to be quickly rejected. “A close above the 21- day exponential moving average (EMA) would be a logical buy trigger, with a close back under that moving average, or beneath the forthcoming swing low, acting as your stop loss.”
Marty Fridson, a MoneyShow.com contributor to TheStreet.com, likes PSX, as well.
“PSX operates 13 refineries in the United States and Europe, with a global refining capacity of 2.2 million barrels of crude oil per day,” Fridson said. “Midstream operations include transportation and storage of natural gas liquids (NGLs), crude oil, feedstocks, and specialty products. PSX markets gasoline, diesel, and aviation fuel throughout the nation. The midstream, marketing. and specialties segments continue to provide stable cash flows.”
The company’s capital spending was relatively conservative in 2021, reporting 3Q 2021 adjusted net income of $1.40 billion or $3.18 per share, easily topping analysts' $1.95 estimates. Quarterly revenues of $31.5 billion nearly doubled from the prior-year period. Strong results benefited from higher energy and commodity prices and continued increased demand.
“PSX's strong quarterly results were also driven by recovered refined product and related fuel demand as the economy continued to reopen in the face of easing restrictions,” Fridson noted.
It’s also worth noting that Phillips was included in CNBC’s 2021-year-end “cheap stocks” basket, which filtered S&P 500 non-financial companies looking for a forward price-earnings ratio at least 20% lower than their five-year average.
SoFi Technologies $9.89. 5-day performance 15.44%.
SoFi’s (SOFI) share price finally rose last week, but is down 13.4% for the past month, and is down 45.92% on a year-to-date basis.
TheStreet’s MemeStockMaven producer Bernard Zambonin notes that “Fintech company SoFi Technologies has been in a free fall since it went public last year and shares recently hit all-time lows,” Zamboni said. “Since going public through a SPAC deal in June 2021 that valued its shares at $22.65, SoFi has fallen more than 60%.”
Yet even with bearish sentiment toward the company, SoFi has been investing and building its capacity to become a major player in the emerging financial technology (fintech) market.
“SoFi's main goal is to become a "one-stop-shop financial services platform,” Zambonin said. “To that end, the fintech company has been making aggressive investments and strategic acquisitions to build a BaaS (banking-as-a-service) business.”
SoFi made its latest acquisition in late February when it acquired Technisys, a cloud-based company focused on core banking services. The acquisition cost about $1.1 billion.
“SoFi expects the purchase to reduce its operating costs by $75 million to $85 million between 2023 and 2025, as well as to help the company offer more personalized services to its customers,” Zambonin added.
According to CEO Anthony Noto, SoFi is operating in the fintech space in a similar way to how AWS (Amazon Web Services) operates in other niche markets.
“In this way, SoFi is differentiating itself from its competitors by using its subsidiary Galileo and now Technisys to focus on a BaaS growth path that will connect web and mobile apps through cloud technology,” Zambonin reported.
To get a sense of what this could mean for SoFi's future profits, according to Lightyear Capital, embedded finance is expected to grow nearly 1,000% by 2025, from $22.5 billion in 2022 to nearly $230 billion by 2025.
More upbeat news – SoFi recently received regulatory approval to officially become a bank.
“The market has been anticipating this development, and it's predicted to be a major catalyst for SoFi's future,” Zambonin said. “The bank charter is crucial for SoFi's business model transition from serving only as a lender to offering a diversified range of financial services.”
According to the company's expectations, being a bank will play a large role in the company's profits. In 2020, about 83% of SoFi's revenues came from its lending business.
“For the next five years, thanks to the diversification of its financial services, SoFi expects to triple its lending revenues,” Zambonin added.
SoFi Investors, however, are right to worry about the company's large investments and acquisitions. “They wonder whether SoFi is putting its resources to work in the right way, given that the company's investments have been in the billions of dollars,” Zambonin said.
Ollie’s Bargain Outlet $43.39. 5-day performance 9.41%.
Ollie’s (OLLI) is another downward-trending stock that picked up steam last week.
The stock, however, has been down 12.23% over the past 90 days and down over 52% over the past year.
TheStreet’s Paul Price sees OLLI as a once-beloved company whose shares have fallen hard and may now be worth looking at.
“It amazes me when previous market darlings suffer dramatic declines, and then nobody wants to own them at fractions of what they paid previously,” Price wrote recently on Real Money.
Ollie's Bargain Outlet Holdings is now in that category for Price.
Ollie's stock went public on July 16, 2015, priced at $16 per share. The opening market-based trade came at $22.68, almost 42% higher. Price noted that all of the company’s major business metrics grew rapidly. By May of 2019, traders had pushed the shares up to $103, representing 52.6-times forward earnings.
Ironically fiscal 2019 was the first year of slower earnings per share growth. OLLI closed on Dec. 30, 2019 at $69.25, while still fetching 35.3-times trailing EPS.
The Covid pandemic that erupted in March 2020 slammed OLLI along with almost everything else. OLLI fleetingly plunged to $28.83 on March 15, 2020. But shares rallied back sharply. By early June of 2020 shares had already rebounded to $112.60.
According to Price, Ollie's actually benefited from Covid-related government-imposed store closures. Because they sell food products they were granted "essential" status and allowed to remain open. Customers could go to Ollie's and buy anything in the stores including general merchandise in most states.
Consequently, Ollie's posted its highest net profit margins ever while racking up fiscal 2020 EPS of $3.16 for the fiscal year ended Jan. 30, 2021. "The shares carved out an all-time high north of $123 on that news.”
Now, however, OLLI stock has taken another beating, dipping below $40 in mid-March. Given that scenario, Price is preparing to pounce again. "The stock has rarely been cheaper, valuation-wise," he said.
