Two technology stocks you can buy
Stocks bounced following an oversold reading.
One stock with AI tailwinds that could be ready to head higher.
Also, technical analysis suggests a large software company’s shares could break out to new highs.
Mutual fund tax-loss selling into the fiscal year ending Oct. 31 caused sentiment-driven oscillators to flash oversold last week, and an unsurprising Fed decision provided the spark to accelerate the recent bounce higher. As a result, the S&P 500 ETF
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SPY
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is now up over 4% since its low on Oct. 27.
The oversold bounce shouldn’t surprise Smarts readers, given the past week’s newsletters. Now the million-dollar question becomes, can it continue? Arguably, the “easy money” has been made, given the rally has lifted the index back to the 200-day moving average resistance. Investors will want to see low-volume and relatively shallow down days and heavy volume on up days to have more conviction to press long-side bets.
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Most stocks trade in lock-step with the index, so how the index trades from here is key. Nevertheless, investors can target picking up shares in these two stocks. However, it could be wise to avoid this other one.
A bulletproof balance sheet with an AI kicker
Artificial intelligence is one of this year’s major investment themes for a good reason. The widespread success of ChatGPT unleashed a torrent of interest in developing and running AI apps that can reduce waste, boost productivity, and solve complex problems more quickly.
What else caught Todd’s eye in premium:
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The Market Finally Hears the Call of a Smartphone Rebound for Qualcomm
The bad news is that it may be a while before we see the promise of AI fulfilled. The good news is that the flurry of interest in training these programs creates a tailwind for companies with the insight and infrastructure necessary to do that faster.
One of those companies is Palantir
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PLTR
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, best known for its close ties to solving the Defense Department’s more complex technology needs.
Palantir still makes money helping the DoD. However, it’s increasingly becoming a key vendor for large companies, too. According to management, many of them are using its AI solution to execute their AI initiatives.
“From CEO Alex Karp’s letter to shareholders, we learn that the reacceleration in the growth of the firm’s U.S. commercial business has been aided by the growing demand that Palantir is seeing for its new Artificial Intelligence Platform (AIP),” wrote Real Money Pro’s Stephen Guilfoyle. “For the full year, the firm has raised its revenue guidance to $2.216B to $2.22B, bringing the low end of the range above the $2.21B that Wall Street had in mind.”
Palantir’s quarterly sales rose 17% year-over-year to $558 million, while earnings jumped 600% to $0.07 per share. The company has generated four consecutive quarterly profits, making it eligible for S&P 500 inclusion.
The company’s on firm financial footing, too.
“There is no debt on this balance sheet,” wrote Guilfoyle. “Yes, you read all of this correctly. Cash position of $3.283B, no debt whatsoever, current ratio of 5.53, adjusted current ratio of 8.19. There may be stronger balance sheets than this one. Then again, there may not be.”
Palantir’s stock has rallied from its lows last week, but technical analysis suggests shares could continue climbing.
“The shares have developed a basing period of consolidation that made use of that level a number of times,” said Guilfoyle. “This morning’s action returns relative strength to the higher end of neutral, sets up the daily MACD (moving average convergence divergence) for a bullish crossover, while the share price took back both the stock’s 21 day EMA (exponential moving average) and 50 day SMA (simple moving average).”
Overall, Guilfoyle rates Palantir a strong buy, targeting an entry below $18. He concludes, “I’ve got to be long this name.”
A stock with robust growth and bullish charts
The software giant ServiceNow
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NOW
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is another stock investors can buy. Like Palantir, it recently reported solid quarterly results and guided higher.
Its revenue rose 25% in the past year to $2.29 billion, and earnings improved 49% to $2.92 in the third quarter. The company’s guidance for subscription revenue this year was upped to between $8.635 billion to $8.64 billion from $8.58 billion to $8.6 billion.
The positive results have lifted ServiceNow’s shares to near their 52-week high, but technical analyst Bruce Kamich thinks shares could still go higher.
” I can see that the shares have traded sideways since June. This is a consolidation pattern that is likely to break out on the upside,” wrote Kamich. “The daily On-Balance-Volume (OBV) line is showing us a bullish rise the past 12 months and suggests that traders have been more aggressive buyers than sellers the past year. The Moving Average Convergence Divergence (MACD) oscillator is slightly below the zero line and thus close to a fresh buy signal.”
Kamich calculates a $669 price target for ServiceNow using daily point-and-figure charts, and a $684 target using weekly P&F charts.
“Traders could go long or add to longs in NOW at current levels and on strength above $600. The $669-$684 area is my optimistic price target. Risk only to $540 in case weakness in the broad market averages impacts NOW,” concludes Kamich.
The Smart Play
The S&P 500’s bounce into resistance suggests that risk-averse investors will want to be patient to see if the index can power up through these levels. Those interested in adding Palantir and ServiceNow to portfolios should target a normal-sized position, but consider breaking purchases into multiple transactions in case the rally fizzles.
For example, if a normal-sized position is 3%, consider buying 1% to 1.5% now, and then, average into the remaining shares on strength if the market successfully pushes up and through resistance or on weakness if it retreats.—
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