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The stock market has pulled back for two straight days, the pundits are breaking out their crash suits, and “dooms-day seers” are making the rounds of the cable finance shows. What happened?
Just Thursday of last week saw the Dow break 17,000 for the first time. The broader indexes looked strong, investors seemed confident, and everything was going smoothly. Until it didn’t.
The tech-heavy Nasdaq pulled back 1.3% while the S&P 500 and Dow Jones Industrial Average each dropped 0.7%, and that was just yesterday.
So should we run screaming into the bunkers to prepare for the worst?
This kind of market pullback isn’t out of the ordinary, or unexpected in a strong bull market. Let’s not forget the ugly pullbacks in mid-April and late January.
The concern for many institutional investors over the past few days has been earnings. The question is whether companies will still be able to grow their gross sales income or “top line growth.” Earnings drive the markets.
Earnings aren’t going to plummet – not yet anyways. They might level off, but it’ll still be more than enough to keep the markets climbing.
What that means is that we should be using this opportunity to check out a couple of Nasdaq stocks in that have taken it on the chin over the past few days.
When I see broad market pullbacks, I want to invest in strength, size, and sizzle. Why bottom feed when you can pick up some best in breeds?
Two of the hottest stocks – and one would say just as controversial – of the past few years have been Facebook Inc (NASDAQ:FB) and First Solar, Inc. (NASDAQ:FSLR). Both have pulled back significantly over the past week. First Solar has dropped over 9% while Facebook lost just over 8%.
Facebook has 1.3 billion users, or MAU, on a monthly basis. More impressive is that the company has 800 million daily users. That’s a lot of captive people to market to.
Facebook has climbed up after a disastrous initial public offering (IPO) and shown investors that yes, it can increase earnings and yes, it can monetize. As the company improves these efforts, the top and bottom lines for investors should improve.
Never forget that Facebook isn’t a social network, it’s a marketing platform that knows everything about its users. That will pay off eventually.
On the other hand, First Solar is paying off today.
Solar production is very much like an arms race to see who can build a better mousetrap – and factory to build them – cheapest. I like First Solar for its size and scale, but I might be one of the few. My Wyatt Research colleague Marshall Hargrave has First Solar on his Three Stocks to Dump before the Summer Correction.
But while I agree that there are challenges from Chinese solar output, we disagree on the ultimate impact. The influx of cheap solar from China has helped the company keep its eye on the bottom line of output to stay competitive and it’s given rise to U.S. tariffs that benefit First Solar domestically.
Which is nice considering the biggest opportunities for solar are right here at home in North America and Latin America.
If we ignore all of the other misleading media on the solar industry, the thing we are left with in First Solar is that it’s cheap relative to earnings. The price-to-earnings ratio for First Solar is an anemic 15.88. Just a handful of large technology companies can report the same. I like First Solar above all because it’s a cheap value play in a fairly to over-valued market.
Momentum stocks that pull back quickest, are also the ones that will turn around and move up faster than their peers. So when I see two growth stock darlings like Facebook and First Solar pull back, I’m going to want to look at it as an opportunity to buy.
It won’t matter if we’re investing for the long-term or just a few weeks, value is value and you should be buying when others are fearful.
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