I happened to read Riley Rosebee’s Popularity & Price newsletter on Sunday. The newsletter focuses on the relationship between a stock’s popularity and share price. It’s an interesting read.
The Sunday post discussed how 33 stocks hit new 52-week highs on Friday compared to 150 new lows. Further, in the previous five days of trading, the tech sector, represented by the Technology Select Sector SPDR Fund (XLK), led the way, hitting new 52-week highs on 12 occasions during the week, while the Health Care Select Sector SPDR Fund (XLV) hit new lows 52 times.
Interestingly, Rosebee also included the Stocktwits followers for each sector and stock. The idea is that in up markets, the least followed stocks with the highest relative strength are the companies to watch, while in down markets, the most followed stocks with the weakest relative strength are the most appealing.
So, based on Rosebee’s Friday data, here are two stocks that hit 52-week lows with reasonably large Stocktwit followings and look ready for a rebound.
PayPal Holdings
During Friday trading, PayPal Holdings (PYPL) hit a 52-week low of $55.86. It managed to close the week at $57.77. It’s gone sideways in the two days since. Down 31.6% over the past 52 weeks and nearly 27% over the past five years, it’s bound to heat up in the coming months.
Analysts don’t seem to have a problem with it. Of the 33 in Barchart.com’s database, 20 rate it either a Moderate Buy or Strong Buy (4.18 out of 5) with a mean target price of $87.62, 52% higher than where it’s currently trading.
What’s holding it back?
Increased competition from both Block (SQ) and Apple (AAPL), says SVB MoffattNathanson analyst Lisa Ellis. In September, Ellis downgraded PYPL stock to Market Perform from Buy.
“Looking forward, unfortunately, we expect PayPal's gross profit growth to remain lackluster, in the low- to mid-single digits,” Investor’s Business Daily reported the analyst’s comments. “We see the potential for further downside to our estimates, particularly given the strong momentum of Apple Pay, which we worry will begin to benefit from the powerful network effects in payments.
In addition, the analyst sees the company’s slowing growth from Venmo, its peer-to-peer payment app that competes with Block’s Cash App.
Trading at 2.31x sales, its lowest P/S multiple in the past decade, the contrarian in me says now's a good time to bet on the payments platform.
PYPL has 142,772 Stocktwits followers.
Paramount Global
During Friday trading, Paramount Global (PYPL) hit a 52-week low of $11.39. It managed to close out last week at $11.82. It’s gained back 5.2% in the two days since. However, down 33.0% over the past 52 weeks and 77% over the past five years, except for the March 2020 market correction, its shares haven’t been this low since October 2009.
Sanford Bernstein reinitiated coverage of seven media stocks on Oct. 5, including Paramount Global. Unlike some names that got Buy ratings, PARA got the worst at Underperform with an $11 target price, below where it’s currently trading.
“It’s not pretty and looking for a savior,” The Hollywood Reporter reported analyst Laurent Yoon’s comments. “Paramount is facing a triple whammy — 1. linear decline, 2. sub-scale DTC, and 3. a poor balance sheet.”
As investors know, broadcasting media has been in the middle of a transition from linear TV channels, such as Paramount Global’s CBS, to video streaming platforms, referred to as direct-to-consumer, such as Paramount+.
While I liked Sylvester Stallone’s show Tulsa King on Paramount+ and several others of its original shows, it does seem to have less content worth paying a monthly subscription for. The analyst also alluded that the company has always been considered a takeover candidate because it’s too small to compete against Netflix (NFLX) and Disney (DIS). To a certain extent, that has acted as an artificial floor on its share price.
However, with no deal imminent, Paramount Global will have to fight its way out of the investor doghouse.
A significant positive: Warren Buffett’s holding company, Berkshire Hathaway (BRK.B), has 15.4% of its stock. It reports Q3 2023 holdings in mid-November. It might be wise to wait until after that news is out to buy PARA stock. Any large stock sales will move the shares lower.
One bet you could make now would be to sell the Jan. 16/2026 $12.50 put. With a $2.88 bid price, as I write this, that’s an annualized yield of 10.3% over the next 829 days to expiration. You have no out-of-pocket while waiting to see how this plays out.
Worst case scenario: It falls to $6, and you’re forced to buy 100 shares at $9.62 ($12.50 strike less $2.88 in premium income), a loss of $362. It’s not the outcome you’re looking for, but it’s also not the end of the world.
The upside? It returns to the $60s, where it routinely traded before the pandemic.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
