3 Stocks to Buy on the Dip and 1 to Avoid

The market is down and that means buying season for investors who are looking to buy the dip. Here with three contrarian plays today is Jeff Clark with TradeSmith. Jeff, so glad to have you on the show today. I want to start out with kind of the elephant in the room and that's just the down market. A lot of people, especially in certain areas of the market are down quite a bit right now. I mean, overall, the S&P is only down a small amount, but there's some sectors down 20 to 30%. What's behind this drop right now? I think what we're seeing here is basically a shift in philosophies from what worked last year to what will probably wind up working this year. You know, last year, if you, if you take the market from early May, all the way through the end of the year, it was pretty much momentum based. And it was all stocks that were going up, kept going up stocks that were going down, kept going down. So you basically have a one direction market. And even though a lot of us were thinking, Hey, at some point we've got to see some rotation. We didn't really see that until now. And as you pointed out, the S&P 500, it's only down what about 2% from a tie, but there's a lot of stocks that were former love affairs with the market that are now down 30, 40, 50%. And so what you're starting to see is money come out of those names and going into some of the unloved names. So all of those things that worked last year, everything's sort of flipped on its head. So you no longer have tech and semiconductors and AI moving everything up, which you see is a consumer discretionary stocks like Pepsi moving higher, you see homebuilders catching up big, you see gold stocks have done really well. So things have changed a little bit. So we're getting a lot more, what I call a reversion of the main situation where you have overbought stocks coming down, oversold stocks coming back up. And you have a lot more of this action going on in the market instead of one direction. Yeah. And that's exactly right. I have my Bridges Buys watch list that I talk about, or I add stocks to from every video that we talk about. And some of those are really getting hit right now. But one of my best performers is Lowe's, which was a really weak performer last year. So interesting to see the shift we're seeing in the market this month. And I think for a lot of investors who are, have been really waiting for this, they've been waiting for this pullback so they can add some of these names to their portfolio. But you have three specific areas, three specific stocks to invest in on this buy the dip opportunity. And then one warning of a buy the dip that you would stay away from. And I think that's just as important of where the buy the dip maybe isn't the best opportunity. So we're going to get to that at the end. But before we get to the first name on your list, let's just talk about what you're looking at for what makes an actual buy the dip opportunity right now. Well, I think you have to have a contrarian nature. So what you have to look for are stocks that are oversold, considerably oversold, much more oversold than history suggests they should be. So for example, I like to use technical analysis and I'll pattern most stocks against their 50 day moving average. So what I look for is if the historic average of the stock is that 50 day moving average, I look for stocks that are historically far below that 50 day moving average for an opportunity to possibly bounce back. So if you have a stock that normally trades somewhere around five or 8% below its 50 day moving average, and now it's 20% below that tells me that that proverbial rubber band is stretched so far that additional downside from here is probably somewhat limited. And it could easily snap back. I recommended at the end of last year, I was recommending consumer discretionary stocks and energy stocks, which nobody liked, but they were so beaten down and so unfavorable, they've had this fantastic move up. I can't recommend them anymore because now we have the opposite situation where they're trading so far above that they're no longer low risk situation. So I look for situations where I think the immediate downside is relatively limited and the potential for a snapback is very strong. Yeah. That's really your specialty at Tradesmith. I know you're looking at those potential swing trades that could have a six to eight week turnaround. And I think that example you gave is a really good example of talking about recommending those consumer discretionary stocks late last year that I've seen a big turnaround as it started this year. So if you're interested in more of Jeff's work at Tradesmith, you can scan the QR code or check the link in the description to dive into Jeff's research at Tradesmith a little more and dive into the different names that he is recommending to his subscribers too that kind of fit this bill. But Jeff, I'm really glad you have three different names for our viewers today that are areas that are exactly those contrary in place that you are looking at right now, and then one to stay away from, which I'm also excited to get into too. So let's get to the first name on the list. Which stock are you looking at? I'm looking at the software sector, the software ETF, which is IGV. I understand a lot of folks are going to look at this. They're going to roll their eyes. They're going to think, oh my God, he's absolutely crazy, but I'm not. Software stocks have just been beaten up like crazy. You can look at Oracle, which is trading less than half of where it was three months ago. You can look at ServiceNow, which just reported a fantastic quarter, but the stock got absolutely beaten up on it. Look at Microsoft, which is down. What about 35% from its high? I'm not suggesting that all of these stocks are going to move right away and there are going to be some casualties from the whole artificial intelligence enhancements, but as a sector, the software sector is not going away. It's very, very oversold to any historic means. You can just simply look at a chart and you can see that sort of a setup. The valuations are quite reasonable relative to their historic past. And so if, if you put a gun to my head and said, you have to pick one sector to own over the next two months, I have to tell you, I don't think the downside, there's much more downside left in this particular sector. It's so oversold, so historic, historically far below its 50 day moving average, that I do think there's a opportunity for a very sharp snack back. And even a modest gain back to its 50 day moving average from here is going to produce somewhere around 25 or 30% return. And I think that can happen relatively fast. And like I said, I know it's not going to be a popular opinion, but that's the nature of contrarian investing and it's the nature of reversion to the mean. You know, if, if everybody loved the stock, it wouldn't be selling off so hard. So that's why I'm looking for stocks that have just been beaten down and look like they can snap back. I think it's really interesting that you're looking at the ETF for this whole sector versus individual stocks. Are there any individual stocks? In the sector that you would look at, or do you think that this ETF is the best way to kind of maybe more safely play this contrarian pick in the software? To all of that, the ETF is probably the safest way. And for folks who are not staring at the computer during market hours, you know, they want to buy something, then go take a nap or go do whatever else they do. And then just come back in six weeks. I think the ETF is the easiest way to do it, but there's a lot of individual names in the software sector that I think are shaping up to be pretty good buys. I like service now. I like it at the current price. Oracle, I wouldn't mind if it dipped a little bit further from here, maybe another two or three or 4%. Microsoft, I think has a little bit more downside, but I think they're all setting up. Like I said, if you could buy the stocks today and then. You know, go rip in legal, you know, take a little bit of a nap and come back in six weeks. I think you'll be happy with what they've done. Super valuable information. And I'd love to hear from our viewers, what you think of this sector? Do you think there's a lot more downside coming yet? Or do you think that there's not as much downside risk because it's already oversold too much? Let me know in the comments. Let's get onto that next sector that you happen to talk about. And this one is really interesting and a very contrarian play right now. Bitcoin. Um, Bitcoin is today trading right around 68,000. That is down significantly from its high back in October of 125. Now, if you think about this back in October, when Bitcoin was trading at 125, you couldn't turn the TV on and not have somebody talking about Bitcoin. And they were all bullish. Everybody was a stark raving mad bull on Bitcoin at 125,000. Today, you turn on the TV with Bitcoin at almost half that price. Everybody's bearish. It's dismal. It is. It's almost like I'm at a funeral watching some of these analysts up there talking about Bitcoin. And everybody seems to think there's a lot more downside. I have to tell you the action in Bitcoin right now looks to me like it's exhaustive selling. It's margin call type selling. It's liquidation selling. So folks are getting out of it because they have to settle up on some of the leveraged bets that they had placed before. That is usually what happens near the bottom. Not saying that bottoms at 68, maybe there's a little bit more downside, but again, it's one of those situations where if you said six weeks from now, do I think it's higher or lower? I think six weeks from now, Bitcoin could be quite a bit higher. And I'm personally not a fan of Bitcoin. I really, you know, I don't trade it that often, but I do trade it when it hits extremes. And right now, if you look at Bitcoin or you look at the ETFs, one of my favorite is BITO is the symbol of BITO and it's a Bitcoin ETF. It just simply tracks the price of Bitcoin. It's trading about 25% below its 50-day moving average. Rarely does Bitcoin trade more than 10% away from its 50-day moving average. So even a small snapback, small move towards a 50-day moving average, it's going to yield a pretty good gain. And again, something that I think within the next six to eight weeks probably pays off quite well. This one's really interesting. And I think there's some investors, like you said, that are hearing this going. I don't know about this slide. Is there a risk? Let's talk about the risk with this type of a contrarian play. I think you made a really good case for saying that you think that Bitcoin is really oversold and towards the bottom, but is there a bear case where it does get even lower from where it is today? Oh, absolutely. I mean, anything can fall. Anything could happen in the markets. But the question I ask is if you were thinking about buying Bitcoin previously and at 125,000, you were kicking yourself because you hadn't bought it before. Now is certainly a better time to buy Bitcoin than it was back in October. In fact, now is better than any other time in the last 15 months to be a buyer of Bitcoin. So if you wanted to buy Bitcoin and you were waiting for a pullback to do that, now is that opportunity to do it. Could it fall some more? Sure. There's, you know, there's a lot of technical analysts and I see the charts as well that say it could be somewhere in the 55 to $60,000 range, but I can also argue that if everybody's looking for it to get there from a contrarian perspective, it's probably not going to get there. It might start to rally before that. And again, based on what I'm seeing happening in the, in Bitcoin world right now, the selling pressure feels exhaustive. From my perspective, I'd be willing to take a little nibble right here, not throw everything into it, but take a little nibble and if it dips a little bit more, buy a little bit more as we get closer to that 55 or $60,000 range that everybody else is calling for. But like I said, it may not get there. So I don't want to miss that opportunity to jump in here. I want to talk about some individual stocks. We've just had a video out yesterday talking about Bitcoin miners that could be making the switch to AI. A lot of these stocks are down quite a bit right now. Are there any Bitcoin related individual stocks that you would be looking at right now? Well, a lot of the miners look interesting here. You know, you can look at Riot and you can look at Mara and Hut. An easier way to do that is WGMI is the symbol for a Bitcoin mining ETF. That might be something you can take a look at, but really, I think if you want to play Bitcoin, play Bitcoin. That's how you do it. And with the exchange traded funds that track Bitcoin, you have the opportunity to do that. It used to not be quite so easy, but now I think if you want to trade Bitcoin, just buy Bitcoin. Well, let's get on before we get to the last one, which is the area of the market that's down right now that you would suggest staying away from. Let's get to the last name that you have on the list of the contrarian play. And again, this is a name we have not talked about on the show before. Albertsons. Symbol is ACI. Albertsons is a supermarket chain. Frankly, I can put any supermarket up here. All of the stocks in the sector look pretty much the same. You can look at grocery outlet. You can look at sprouts, farmer's market, et cetera. Albertsons just looks interesting to me because I think from a valuation perspective, it's one of the cheapest. I think it trades about eight times earnings. It was a previous takeover target and that all fell apart because of antitrust issues. But the company has done a lot of things to increase their margins, increase their revenue, increase their customer basis. And it's one of the largest grocery chains in the country. From a contrarian perspective, I think it makes sense. It's one of the stocks that performed worse last year. It's already looking pretty good so far this year. You'll notice it's, I'm not bottom fishing on this one. This one is actually off the bottom a little bit, but I think there's a lot more upside, maybe 20 or 30% more upside over the next several weeks. So that's what I like about Albertsons. But again, anything in the grocery sector makes sense as well, because that's a sector that hasn't performed that all of a sudden looks like it's starting to perform. And so that just sort of goes with what we've been talking about this whole time. Yeah, that's what stood out the most to me about this one. It's unlike the last two names we talked about that look like they could still be on a downtrend. This one has that small bounce back after it's been down for so long. Are we seeing that in a lot of the grocery sector and why are we seeing that turnaround? Is it similar to those home builders we talked about in those consumer discretionary stocks? Well, it's defensive, right? No matter what happens in the economy, we need to eat. So we're going to be buying groceries. It's a mandatory market. It has to exist. And it wasn't popular before because you had all the AI names and the semiconductor names and the tech and everything else moving in one direction. Nobody really cared about the staples, the things that you had to buy. Now people are looking at the economy and thinking maybe we might be in for a little bit of a rough move, what works best, but what works best in the economy are those defensive sectors and groceries qualify. Very nice. And I know that this is one of the many things that you cover at Tradesmith, looking at the different sectors that have potential, looking for these different contrarian plays. And today we've talked quite a bit about ETFs. I know that that is something you've talked about a lot with your subscribers at Tradesmith. Again, if you want to look at the research that Jeff and his team do, you can scan the QR code and also drop the links down in the description and in the comments to dive a little bit more into these contrarian plays. I think this has been such a fascinating conversation, but this last bit that we have, Jeff, is just as important, and that's where not to look when the market is down. I think a lot of people are looking at these as discounts or a sale price on stocks, but there's some areas where the price might be dropping for a reason, and it isn't at that bottom quite yet. Yeah, I think your viewers are not going to appreciate these comments that I'm about to make, but I think the gold sector, the precious mining stock sector is in trouble. I think we saw a very significant intermediate turn peak in the price of gold and silver recently, and the gold mining stocks are going to suffer for at least a few more weeks before we have an opportunity to buy into that. So they had a fantastic run. Obviously, everything looked really good, but again, it's one of those things where the time to have bought them was before you had this magnificent run. If you're looking at it now, just after it comes down a little bit off the peak, ask yourself, what is the popular opinion with it? Most people love the gold sector right now. They absolutely love gold and silver. Heck, my wife came home the other day and said, hey, do we own any silver? And this was maybe two weeks ago, and we did, and I sold my silver the next day because if she's talking about it and her friends are talking about it, then it's made it to the popular opinion. And in that situation, from a contrarian perspective, most of that move's done. So I'll wait until people show up on CNBC or on Bloomberg and start talking bearish about gold and silver. Then I'll start paying attention as to maybe now's the time to get into miners. But right now, the miners have had such a fantastic run. They just pulled a little bit back off their highs. I think they have to follow a little bit more before they represent a good buying opportunity. Such an interesting contrarian viewpoint, because like you said, the sector has been so hot. I really love the argument that once everyone's talking about it, that is the time to get out and take some profits on it. Interesting concept, a very contrarian look. Let's talk a little bit about the move to safety. We did just talk about that with the retail and the grocery sector. Many say the move to safety is gold, is silver, and that's why we've seen this run up. Do you see that continuing with the geopolitical issues, economic uncertainties, is that move to gold just going to continue as more of those uncertainties continue across the globe? Well, I think that became discounted. I think all the uncertainties and all the caution signs became discounted in the recent move from gold. You don't see gold move 100% of the year very often. You don't see silver shoot up 250% in six months, but it just doesn't happen. So I think a lot of that, at least the initial move, was discounting the potential for political and geopolitical upheavals. The tail end of that move, however, was enthusiasm. It was public enthusiasm. It was everybody's screaming, trying to get into the trade. When that happens, I don't want to say that's the tulip bulb market mania, but it reminds me a lot of the tulip bulb market mania we all studied in school and economics. It's just things have gotten too, too hyped up too fast. And so you need to shake out the weak hands, if you will. You need to shake out some of that and get folks out of the way before you actually have a good bottom in place. So whenever you have a situation where the stocks have moved so far above their relative moving averages, they're vulnerable to a pullback to it. So I'm waiting for GDX and the rest of the gold miners just to simply come back to it. I would much rather be a buyer of it near support levels than buying it as it's trying to make a parabolic move. I think it's a really good advice and a good outlook for buying many stocks. It's always hard to actually time that bottom or that turnaround at any stock. I do want to leave our viewers with what specific tickers you're looking at to stay out of in the gold or silver trade. Are there some specific stock tickers to look at? The mining sector tends to move in tandem. All the stocks move together. They go back and forth together. So I would, at the moment, I would avoid buying anything in the precious metals market. So GDX, the main components there are Newmont Mining, Barrick, Agnico Eagle. All of those, they just, they're too far extended. They need to come in just a little bit. I'm not saying you should go out and short them. I'm not looking to profit on the downside. If you're looking to get in, I think six to eight weeks from now, you'll have a much better opportunity to buy. And that'll usually be when nobody wants to. Yeah, that's definitely the contrarian view and a contrarian approach to investing. We talk about that in our latest video on 10 stocks to buy that could 10X. These are all Bitcoin miners that are potentially making the shift to AI and they are all very low right now too. If you want some other contrarian plays, make sure to watch this video too.