Looking to buy the dip? Historically, the stock market has been rising for many years, so the long-term trend is generally higher. When a selloff occurs and stock prices decline significantly, that circumstance tends to offer investors a decent buying opportunity because the market typically recovers subsequently. Buying stocks after a notable selloff or “dip” can be a risky endeavor, however, so this should definitely be done with caution.
Furthermore, traders who routinely buy on the dip might follow the market maxim of “buy low, sell high” as part of a swing trading strategy. Still, if the buy trade is not timed correctly, it could turn into a losing “buy low, sell lower” transaction.
In the following article, Benzinga explains how to identify stocks that have sold off to a level that makes them attractive long-term investments and potential trading opportunities for short-term profits.
Quick Look at the Best Stocks to Buy on the Dip:
- Microsoft Corp.
- UiPath, Inc
Coinbase Global Inc - HIVE Blockchain Technologies Ltd
Why Buy Stocks on the Dip?
The phrase “buy on the dip” or “buy the dip” typically refers to the strategy of purchasing or going long an asset after its price has seen a short-term drop. This strategy usually makes more sense in a higher trending market, and it can be riskier if the market is in an established downtrend.
Investors and traders who buy the dip generally do so because they expect a market rebound, which is less likely to occur in a downward-trending market when selling rallies would be a more appropriate strategy. This is something that many people are confused or even nervous about—especially because they don’t want to be caught in a situation where a “good” investment becomes a bad investment in a matter of minutes.
If the market is trending upwards, then the asset is more likely to recover its losses, so buying it could result in a good trade or longer-term investment. Conversely, if the market exhibits a general downtrend, then a selloff or dip in an asset’s value may be followed by even lower prices.
How to Find Stocks That are Close to Rallying
Not all stocks that decline in a market dip will rally back to their original prices and continue trading higher. Certain criteria exist for picking stocks after a market selloff that increase the likelihood of a buy resulting in a good investment or trade idea. Examples of what to look for when searching for stocks that are close to rallying include:
Large Companies
A buying-the-dip example that stands a decent chance of being profitable consists of buying a high capitalization stock after a broad stock market decline. While the company’s stock price has declined along with the general market, the underlying fundamentals of the stock likely remain unchanged.
Since the large company’s potential may not have been affected by a broad market decline, a good chance exists that the company’s stock price will subsequently trend higher towards its price before the market selloff occurred. Large-cap stocks tend to have a lot of room to move, which means you might get some extra value from buying their stock after a brief market downturn that is expected to reverse.
Check Current Events
In addition to economic and geopolitical news that might depress the stock market as a whole, news on a particular stock might provide a clue as to whether that stock could rally. News on a publicly-held company that might suggest a move higher could consist of a better-than-expected earnings report, the announcement of an interesting new product or the favorable replacement of a problematic high-level company official, for example.
Keep in mind, however, that the same news could trigger a selloff, especially if it was already reflected in the share price ahead of the announcement, as market players “buy the rumor but sell the fact.” Researching a company’s recent history can also alert you to possible litigation involving the company or its previously unknown liabilities that could cause a more substantial and sustained downturn in its stock price.
Benzinga Pro’s advanced news feed with a focus on Apple Inc. stock in the lower left and an earnings calendar on the right. Source: Benzinga Pro.
Review Analysts' Estimates
Analyst forecasts provide investors with financial insights into companies that may not be readily apparent from their own press releases. You might want to check out several analysts’ assessments for the same stock to get a broader and more informed view of the company’s future prospects.
Look at Penny Stocks
Even though penny stocks may seem risky, they can still offer significant returns if you pick the right ones. Also, stocks trading under $1 can increase dramatically in price to offer potential returns that can dwarf those made investing in pricier stocks. If you’re inclined to thoroughly research your investments, then looking into buying promising penny stocks might be a worthwhile endeavor.
Plan and Budget Carefully
You should plan and budget according to your strategy. Remember that your budget should not be the same as someone else’s. You want to make the most of the money you’ve allocated for this purpose, and there are several ways to break up your investments. You don’t need to spend all your money right away, and you shouldn’t allocate all your funds to buying at the dip.
This is a strategy that works in particular situations, and your budget may not support some of the stocks you have found.
The Best Stocks to Buy on the Dip
Several stocks that have historically rallied after a market dip are listed below. Keep in mind, however, that if the prevailing market trend indicates lower prices ahead, then all stocks tend to continue selling off.
Microsoft Corp. (NASDAQ: MSFT)
One of the most successful companies in stock market history, Microsoft’s primary business consists of developing and supporting software products, devices, services and solutions through its different company segments, including the Intelligent Cloud, Productivity and Business Processes and More Personal Computing.
Microsoft stock has so far declined more than 10% over the last year, so the stock may not be finished falling yet. According to a recent article in Forbes, certain vulnerabilities exist in Microsoft’s Windows 10 and 11 operating systems, as well as in its Windows Server software.
The vulnerability tracked as CVE-2021-34484 allows hackers to take over Windows operating systems and Windows Server. While the negative impact of this news may already be priced into Microsoft’s stock price, other developments, including the fact that Microsoft knew of the problem in September 2021, may put further pressure on MSFT’s stock price.
Despite the negative news, Microsoft has been aggressively buying back its own shares, which gives a strong indication that the stock may have considerable upside potential. Microsoft stock has been a bellwether technology asset in many successful investors’ portfolios, so picking a level to buy after a selloff in MSFT makes a lot of sense.
UiPath Inc. (NYSE: PATH)
Founded in 2005, New York City-based UiPath Inc. develops and provides a software platform for automating business processes. The UiPath platform serves the telecommunications, finance, healthcare and banking industries with accounts payable automation, finance and accounting automation, claims to process,and contact center automation.
UiPath had its initial public offering on April 21, 2021, selling 23.9 million shares at $56 per share. Since then, the company’s stock price has seen a high of $90 and a low of $23.93 per share. UiPath has yet to make a profit, and its earnings have consistently come in lower than analyst expectations.
While this company’s stock may seem cheap trading near its $23.93 historic low at $28.80 per share, its net income still shows a substantial loss of -$92.39 million this year, which translates into a loss of -$0.85 per share. Because of its speculative nature, if you’re considering purchasing this stock on a dip, you may want to do so near its all-time low with a prudent stop-loss placed below that level.
Coinbase Global Inc. (NASDAQ: COIN)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| COIN | Coinbase Glb | 2.79% | $281.55 | Buy stock | ||
Founded in 2012, San Francisco-based Coinbase Global Inc. operates the world’s largest cryptocurrency platform and provides a securely-hosted wallet you can use for Bitcoin transactions. The company also provides companies with merchant tools to accept Bitcoin as payment by adding a single button to their commercial websites.
Coinbase had its IPO on April 14, 2021, at a reference price of $250 per share. The stock opened significantly higher at $381 per share and then rallied to nearly $430 per share before closing on its first day of trading at $328.28 per share.
Since its IPO, COIN stock has traded as high as $429.54 per share and as low as $150.12 per share, which demonstrates the unusually high volatility of this stock. Unlike UiPath, Coinbase has positive earnings, showing an EPS of $14.81, which works out to a price/earnings ratio of 12.84 at its recent closing price of $187.32.
While COIN stock trades at a high price, it gives investors wary of the crypto market a way to indirectly participate in its growth. Also, the fact that the company already shows a profit makes it an attractive investment if you can buy it on a dip since cryptocurrencies, crypto exchanges and related industries may present significant future growth opportunities.
HIVE Blockchain Technologies Ltd. (OTCMKTS: HVBTF) (TSXV: HIVE.V)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| – % | $ – | Buy stock | ||||
Vancouver, Canada-based HIVE Blockchain Technologies Ltd. has aptly kept up with the times through many name changes. The company was incorporated in 1987 as Carmelita Petroleum Limited, although it then changed its name to Carmelita Resources Limited in 1996, to Leeta Gold in 2000 and finally to HIVE Blockchain Technologies in 2017.
HIVE’s main business currently consists of mining and selling cryptocurrencies — including Bitcoin, Ethereum and Ethereum Classic — in Canada, Iceland and Sweden using green technologies. The company offers investors an excellent way to participate in cryptocurrency markets without directly buying highly volatile digital currencies themselves. HVBTF stock traded as low as $0.09 per share in January 2020 but then soared to $5.75 per share in February 2021.
The stock has since retraced significantly and currently trades at $2.12 per share. The company also went from reporting a loss of -$5 million in its 2019 fiscal year before interest, taxes, depreciation and amortization (EBITDA), to reporting a $7.8 million profit in its 2020 fiscal year.
HIVE has also entered decentralized finance (DeFi) by engaging in a stock swap with DeFi asset manager DeFi Technologies (TSE: DEFI) in April 2021. HIVE stock offers investors interested in getting involved in cryptocurrencies an attractive low share price, a green energy investment and a viable alternative to participating directly in the booming — but volatile — crypto markets.
Compare the Best Stocks to Buy on the Dip
Regardless of which stock or asset you decide to research, Benzinga provides invaluable information on every U.S. listed stock. You can also use the service to research many foreign stocks you can trade through American Depository Receipts, as well as a wide range of other financial assets. Benzinga, and especially its Benzinga Pro subscription premium service, provide excellent resources for researching the best stocks to buy on the dip. The list below compares various stocks for how good an investment they may be on a market dip.
What to Look for When Buying the Dip
As mentioned above, you will first want to review recent news and earnings reports when considering buying a stock on the dip. You should also perform in-depth technical analysis on any stock you’re interested in buying to make sure you time your purchase transaction well. This type of analysis also reveals levels of support and resistance that reflect market levels of supply and demand for a particular stock so that you can pick the best price level to buy at.
Frequently Asked Questions
How do you buy stocks on the dip?
Buying stocks on a dip typically involves first finding a stock that has recently declined in value along with the overall market and then doing some fundamental and technical analysis on it to determine if it still looks cheap and likely to recover.
Should you buy stocks when they drop?
The answer to this question depends on overall market conditions and whether the particular stock involved seems likely to appreciate in the future.
What are the best stocks to buy on the dip?
In this article, Benzinga offers it list of the best stocks to buy on the dip.
About Jay and Julie Hawk
Jay and Julie Hawk are a married financial writing and authorship team who co-founded TheFXperts, a notable financial writing services provider. The Hawks each worked professionally in the financial markets and have more than 40 years of trading experience among them. Together, they write books, trade forex online for their own account and others, mentor traders, and have worked actively as professional freelance writers specializing in financial topics for over 15 years.