Market Insights

Is the coronavirus selloff finally ending? That was the hope this morning as Congress prepares a multi-trillion dollar bailout for the economy.

The problem with huge rallies like today is that some of the biggest gainers are little more than dead-cat bounces. Investors looking out more than a few sessions may want to focus on companies with longer-term growth trends. But how to find them when everything is up?

Earlier this month, Market Insights featured a scan to separate price performance before and after the crash. Today we’re running it again and reviewing some of the significant names. This time we used 250- and 22-session intervals. That will find stocks that led approximately one year ago, through the start of the crash.

Tesla (TSLA) immediately jumps to the top of the list. It rallied 228 percent in the period before the coronavirus crash, and has pulled back more than 40 percent since.

Tesla Bears Surrender

The electric-car maker started running in late 2019 after fixing key production problems. Its rally turned into an emotional short squeeze as bearish traders were forced to buy back stock they’d previously sold in hope of a drop.

TSLA hit the wall in early February and skidded lower as coronavirus hammered the market. But last week it bounced at a key support level and its 200-day moving average. That caused at least three analysts to raise their ratings from the equivalent of a “sell” to the equivalent of “hold”:

• Bank of America calls it more attractive after the pullback. (March 18)
• Morgan Stanley also liked the lower valuation after getting cut in half. (March 19)
• UBS sees a backlog of orders for electric vehicles in China. (Today)

Advanced Micro Devices (AMD) and Nvidia (NVDA) are next on the list. The semiconductor companies have enjoyed a wave of demand for data centers and artificial intelligence. They’re among the most active stocks in the market and on the TradeStation platform.

Both are also rebounding from their 200-day moving averages. Technical analysts often consider that a sign that the longer-term uptrends remain intact.

Avoiding Value Traps

Investors may find it useful to focus on companies with longer-term uptrends because their businesses are generally growing. That can make money managers want to own them for months and years into the future.

On the other hand, companies like energy, financials and small caps lagged before the crash. Sure, they might stage some impressive bounces in the near-term. But the headwinds facing their businesses remain. Those include a glut of crude oil (energy), low interest rates (financials) and mild economic growth (small caps).

Situations like this typically favor secular growth areas like technology. That could be even more true as a flood of remote working focuses attention on software, computing and networks. And don’t forget about the 5G buildout.

Apple and Shopify

Two other companies on the list include Apple (AAPL) and Shopify (SHOP).

AAPL retraced its entire breakout that started in October. Its story features the shift toward services that generate stickier revenues over the long run. Wall Street considers these more valuable than hardware sales. That’s why AAPL’s multiples expanded late last year.

SHOP is a fast-growing provider of e-commerce services that quadrupled in value between early 2019 and early 2020. Last quarter featured strong guidance and made some analysts call it “the next Amazon.com.”

In conclusion, this post isn’t a trade recommendation and everyone should do their own homework. But the coronavirus crash has significantly reduced the price of several major stocks. Investors may want to start looking for opportunities in these strong corners of the market — and also take care to avoid value traps.