For a few months, I’ve believed that both inflation and stocks were bottoming. Now prominent JPMorgan analyst Marko Kolanovic is making the same call. Thanks to the bear market, shares of companies with good fundamentals and strong outlooks are drastically undervalued. Nowhere is this more evident than on the Nasdaq exchange, which has fallen much more than the other major indices over the past year. Therefore, I’ve put together a list of seven Nasdaq stocks to buy on the dip.
Before I go through my list of undervalued Nasdaq stocks, though, let’s take a closer look at Kolanovic’s comments.
On Monday, he wrote in a note to clients that the stock market pullback was likely to end soon, while a “strong rally” could ensue in the near term. “Robust earnings, low investor positioning and well-anchored long-term inflation expectations should mitigate any downside in risk assets from here,” Kolanovic said. He added that stocks could move significantly higher “whenever the macro picture turns less negative.”
In other words, given investors’ depressed mood, it won’t take much to spur a rally. And since the Nasdaq tends to lead the other major indices (higher, as well as lower), looking for Nasdaq stocks to buy on the dip is a good way to play the potential forthcoming rebound.
| EXAS | Exact Sciences | $36.30 |
| NKLA | Nikola | $4.38 |
| PUBM | PubMatic | $16.92 |
| XPEV | XPeng | $14.09 |
| AMZN | Amazon | $118.54 |
| SEDG | SolarEdge Technologies | $287.96 |
| PENN | Penn Entertainment | $29.14 |
Exact Sciences (EXAS)
Exact Sciences (NASDAQ:EXAS) develops and markets tests for the early detection of cancer. Its flagship product Cologuard is an at-home test for colon cancer.
In April, the American Society of Clinical Oncology recommended the use of Exact Sciences’ Oncotype DX Breast Recurrence Score test for early-stage breast cancer patients. The test is used to predict whether chemotherapy may be effective and the chance of recurrence.
Earlier this month, Exact Sciences announced results from a multi-cancer early detection biomarker validation study. Using a multi-biomarker approach, it “demonstrated the ability to detect cancer signal from 15 organ sites with a mean sensitivity of 61% and mean specificity of 98.2%.” In other words, its test had a 61% chance of flagging cancer in people who had it and a more than 98% chance of avoiding false positives.
Following the news, genomics stock analyst Jack Meehan of Nephron Research noted that Exact Sciences’ test was almost twice as effective at detecting stage 1 cancers as the Galleri blood test. Galleri was developed by Grail, which was acquired by Illumina (NASDAQ:ILMN) last year.
For the second quarter, Exact Sciences’ revenue jumped 20% year over year to $521.64 million, beating analyst estimates by $25.5 million. Revenue from screening was up 34% from a year ago to $353.9 million. And the company reported a smaller-than-expected loss of 94 cents per share.
Shares are down 65% over the past year, providing an excellent opportunity for long-term investors.
Nikola (NKLA)
The second name on my list of Nasdaq stocks to buy on the dip is Nikola (NASDAQ:NKLA), a maker of battery-electric trucks and trucks powered by hydrogen fuel cells. As I pointed out in a previous column, “Nikola is starting to prove the skeptics wrong by successfully obtaining 134 purchase orders for its Nikola Tre electric truck and delivering 48 of the EVs.”
While there are still plenty of NKLA bears out there, BTIG analyst Gregory Lewis agrees with me that shares are undervalued. He recently upgraded the stock to a “buy” with a $12 price target, which is more than 170% above the current share price. Lewis estimates that Nikola’s battery-electric truck business alone is worth $9 to $10 per share and “has at least been partially de-risked” by the commencement of deliveries.
Yet, Nikola’s hydrogen fuel cell electric trucks present the biggest growth opportunity for the company, according to Lewis, as the industry is still in its infancy. Nikola is expected to begin delivery of those in late 2023 or 2024.
NKLA stock is down 59% over the past year and has a market cap of just $1.9 billion. This greatly undervalues its potential.
PubMatic (PUBM)
PubMatic’s (NASDAQ:PUBM) cloud infrastructure platform enables real-time programmatic advertising transactions.
The company reported better-than-expected Q2 earnings in August. Revenue was up 27% year over year to $63 million, with existing customers upping their spending by 30%. And adjusted EBITDA rose 24% from a year ago to $23 million.
Following the report, JMP Securities analyst Andrew Boone reiterated his “outperform” rating on PUBM stock. He did lower his price target to $34 from $40, but the new target is still more than 100% above the current share price. He noted that the company’s earnings were excellent and that shares are undervalued.
PUBM stock shot up 24% in a single day following its Q2 report but has since given back those gains. Shares are 34% lower over the past year and currently sport a price-to-earnings ratio of 17.7. Analysts are forecasting revenue growth of 23% this year and 19% next year.
Xpeng (XPEV)
Next on my list of Nasdaq stocks to buy on the dip is Chinese electric vehicle maker Xpeng (NASDAQ:XPEV). The company reported solid second-quarter results in late August, with revenue nearly doubling year over year to $1.1 billion, which was ahead of estimates. However, shares continued their months-long decline on a wider-than-expected loss and guidance that disappointed the Street.
Deliveries were up 98% in the second quarter compared with a year ago, hitting 34,422, although there were down slightly on a sequential basis. For Q3, management expects vehicle deliveries to increase 13% to 20.8% on a year-over-year basis.
On Sept. 13, Deutsche Bank issued a positive note on XPEV stock, saying the selling was overdone. The firm expects Xpeng’s new G9 SUV to “sell well” as long as it is priced competitively, noting that the EV maker got nearly 23,000 pre-orders for the G9 in the first 24 hours of the pre-sale.
Finally, Xpeng is looking to go head to head with Tesla (NASDAQ:TSLA) in China with the launch of the pilot program for its advanced driver-assistance system, City NGP.
XPEV stock is down 62% over the past year. When EV stocks come back in favor, investors will likely be happy they bought the dip in this one.
Amazon (AMZN)
We are entering a seasonally strong period for Amazon (NASDAQ:AMZN). Like all retailers that get most of their revenue from Western countries, the e-commerce business generates more sales in Q4 than in any other quarter.
By the time the holiday shopping season starts in earnest in two months, I believe consumers’ pent-up demand for experiences will have been largely satiated, resulting in them spending more money on holiday gifts than many expect. Macroeconomic factors, including easing gasoline prices and a rebound in the stock market, could also boost sales into the end of the year.
Morgan Stanley analyst Brian Nowak noted last month that the company’s recent fee increases on some merchants indicate that it has significant “confidence in the health of its U.S. seller offering and its consumer.”
Nowak reiterated his “overweight” rating and $175 price target. Following the 29% decline in shares over the past 12 months, this target implies upside of 48% over the next year.
SolarEdge (SEDG)
SolarEdge (NASDAQ:SEDG) makes and sells inverters used in solar-energy projects. In early August, the company reported better-than-expected second-quarter earnings of 95 cents per share. This easily beat the consensus EPS estimates of 88 cents. However, the stock sold off as revenue of $727.8 million disappointed. It was still up an impressive 52% year over year, though.
The midpoint of management’s Q3 revenue guidance, at $825 million, came in above estimates of $821 million. And they expect adjusted operating profit of between $90 million and $110 million for the third quarter.
Speaking at Oppenheimer’s (NYSE:OPY) 25th Annual Technology, Internet & Communications Conference in August, SolarEdge exec Lior Danziger said, “we’ve been very fortunate to be at the right industry at the right time … the demand for solar products has been booming, at least for us. And if we look across all the geographies, all the segments, we see accelerated growth, accelerated demand, and we’re very excited to see that. ”
Like most solar companies, SolarEdge stands to benefit from government policies supporting renewable energy sources, such as the Inflation Reduction Act. The clean energy tax credits in the recently passed legislation could double deployment of wind and solar energy by 2030 in the the United States. Additionally, the rising price of electricity could boost demand among consumers looking to lower their energy bill.
SEDG stock is up 5% over the past year, bucking the broader market downtrend. However, shares are down 23% from their late-July high, providing investors with a chance to buy the dip.
Penn Entertainment (PENN)
The last name on my list of Nasdaq stocks to buy on the dip is Penn Entertainment (NASDAQ:PENN), formerly known as Penn National Gaming. It operates casinos and racetracks, as well as online gaming and sports betting. Given the rapid growth of online gambling and the continued popularity of in-person betting, shares’ forward P/E of less than 9 is almost absurdly low.
On Aug. 17, Penn disclosed via an SEC filing that it would raise its stake in popular sportsbook app Barstool to 100% from 36%. The deal is expected to close in February, with Barstool becoming a wholly-owned subsidiary of Penn. It should add significantly to Penn’s top-line expansion next year.
PENN stock has sunk 60% over the past year, providing an opportunity for traders to buy shares on the cheap ahead of the Barstool deal’s closing.
As of the date of publication, Larry Ramer owned shares of PUBM, EXAS, ILMN and XPEV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.