The Opportunity Market

There is a beautiful saying: Focus on what the market is doing and not what it should be doing. Also, Focus on money management and risk management. The market believes the economy may be turning a corner. And at this point in time, instead of intellectualizing and debating, focus on the pocket of opportunities and develop trading plans to make up for all the damage market did over the last 10 months. Here are some interesting price action stories.

The T-Mobile Story: Stable Business Boring Stock

The US telecom sector is a race between 3 big players: AT&T, Verizon, and T Mobile, and the company/stock winning the race is T-Mobile. The company has a leadership position in the postpaid subscriber base and now it’s quietly expanding its 5G fixed broadband service. The market loves the stock and even though it’s not delivered supernormal returns this year but look at how the stock not only survived a brutal market correction but prospered too.

T Mobile stock Gapped up and gave buying opportunity at $120 in Feb and March and even though the stock did nothing for months, it has finally rallied and now trades near 146. The stock is finally up 21% from the base of 120. 

Every Gap up story is not pretty. AT&T stock also did a Gap up post restructuring as a clean wireless telecom company. The stock did well by always bouncing from 19 levels but then came earnings and horrible updates from the company – consumers are struggling to pay their bills on time and the company lowered its Free cash flow outlook. The stock gapped down and gave up all the gains. The stock does not have much downside due to its dividend but the upside also looks limited.

History Lesson: Once upon a time i.e. in 2011 – AT&T wanted to buy T Mobile but regulators blocked it. T Mobile then pursued an aggressive growth plan and today in 2022 – T Mobile is a bigger company than AT&T. Deutsche Telekom now owns a 48.4% stake in T-Mobile U.S., post-merger with Sprint. T Mobile continues to be a long-term investment story. Should one buy now? No, but on dips – yes. In 10 years’ time, it will give you hefty dividends.

Oil stocks make a comeback

The market participants are obsessed with beaten down tech stocks right now but the companies with strong earnings power continue to be Oil names. Last week, lots of them – advanced with a Gap on strong earnings and other news. The stock I like is Devon Energy. I recommended it near the current market price only. But the real buying opportunity was at 54. I skipped it due to the market lack of interest back then. 

Devon Energy will acquire Eagle Ford-focused company, Validus Energy, for $1.8 billion in cash. The acquisition will boost EPS and Cash flow/share by double digit percentages. This is great news for a company that already gives hefty dividend (7.8% dividend yield).

The other stock I like in the space is Southwestern Energy SWN. It has a similar pattern and the stock is marching higher.

Following Toast TOST

Toast TOST is a restaurant software company. The company delivered a strong earnings report (revenue up 58% year over year). As Restaraunt business making a comeback in post covid world, this software company is benefiting from a healthy business environment. The company still made a loss but as it quickly scales up, it will soon breakeven. The stock did a Gap up on earnings but sold and closed at the lows of the day. I would love to add the stock between 18 and 19. 

This is one stock to keep an eye for strong trading gains.

The CEG – Gap up Story

When stocks do Gap up on fundamental developments, then they deliver stunning follow through returns. Constellation Energy, a play on Nuclear Energy first popped up on Climate Bill and then made a large candle move on earnings (i recommended near 71) and see how strong the move has been thereafter

Recommendations in Large Cap Space:

• Long-term Investment buy Kinder Morgan KMI at 17.76 now at 18.69. This is a dividend growth story for years to come
• Ford at 13.6 now at 16.2
• Nokia at 5.12 now at 5.22 [boring stock]
• Boston Scientific BSX at 41 now at 42.33
• Solar: FSLR at 99.5, now at 118 + NOVA at 23.9, now at 29.38. I also recommended TAN [Solar ETF]
• PayPal at 95 now at 101
• AMD at 73 now at 100 [Booking Profit here]

Chart Source: finviz.com

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers