Volatility continues to plague the broader markets, with the Nasdaq flirting with a bear market on Tuesday. The Nasdaq tanked almost 18% from its all-time intraday high set in July, to settle at 4,268.76. It needs to fall to 4,185.55 to be in the bear zone, which will indicate a persistent drop of 20% or more from previous highs. Plunge in high flying tech stocks along with sell-off in biotech stocks continued to drag the tech-laden index into negative territory.
A series of headwinds including the relentless slump in oil prices, slide in bank stocks, global growth worries and uncertainty about the timing of a Fed rate hike also weighed on investors’ sentiment. They found solace in taking money out of equity markets and parking them in safe-haven assets like treasuries and gold.
However, these fears that have resulted in selling and down-sizing stocks listed on the Nasdaq should work well for bargain-hunting investors. They can now buy high-quality stocks at a discounted price. Investors should keep an eye on stocks that are positioned to grow in the near term, despite the initial hiccup. Analysts are also expected to be bullish on such stocks, with earnings estimates being revised on the upside.
Tech Stocks Crash
The Nasdaq is now dangerously close to the bear market level mostly due to the decline in FANG stocks. These stocks that helped the index to end in the green last year, failed to repeat their feat. Instead, shares of Facebook, Inc. FB, Amazon.com, Inc. (AMZN - Free Report) , Netflix, Inc. (NFLX - Free Report) and Alphabet Inc. GOOGL dropped 4.9%, 28.7%, 24.7% and 9.9%, respectively, on a year-to-date basis.
Their sky-high valuations were also a reason for putting off investors. In fact, carnage in these momentum names was led by LinkedIn Corp. LNKD. Shares of this Internet stock were down 8.8% on Tuesday, a day after the company missed on earnings and issued a downwardly revised guidance.
Amazon and Netflix are already in bear territory, while the other big tech bellwethers including Apple Inc. (AAPL - Free Report) , Tesla Motors, Inc. (TSLA - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) are succumbing to a bear market. Moreover, behind Nasdaq’s atrocious performance this year was GoPro, Inc. (GPRO - Free Report) . Shares of this company engaged in producing wearable HD camcorders have plummeted 36.8% year to date. Overall, the Technology Select Sector SPDR (XLK) is down 9.5% on a year-to-date basis.
Sell-offs among biotech stocks is also taking a toll on the Nasdaq. Some biotech stocks such as Gilead Sciences Inc. (GILD - Free Report) and Regeneron Pharmaceuticals, Inc. (REGN - Free Report) nosedived 13.8% and 32.6%, respectively, year to date. The broader iShares NASDAQ Biotechnology Index (IBB) has decreased 26.6%.
Analysts are continuing to speculate about the reasons behind this biotech crash. Fundamental issues such as drug price regulation, lackluster earnings results and a few merger deals may be having an adverse effect on biotech companies. Some also fear that presidential candidates might be presenting ways to curtail drug price increases while others believe that demand for medications in China might get hampered due to its slow economic growth.
China plunged into a bear market territory last month, while it had surprised investors last year by devaluing its currency, which eventually led to a rout of $5 trillion in the nation’s equity markets. Moreover, on Tuesday, the yield on 10-year government bonds in Japan slipped into negative territory for the first time ever. Tokyo’s Nikkei 225 declined 5.4% yesterday.
Global economic growth seems to be highly uncertain against the backdrop of falling oil prices. Global oil prices continue to move south as investors remain concerned about the persistent supply glut. The oil industry’s woes escalate as storage levels turn into ‘critical levels.’ Moreover, the International Energy Agency (IEA) warned on Tuesday that the global supply glut will grow further this year. Meanwhile, Iran had ramped up production levels after its ban got lifted.
Additionally, bank stocks declined due to uncertainty over the rate hike and widening credit spreads. Investors worry that a Fed rate hike now will perpetuate more turbulence, slowing down the domestic economy further.
5 Growth Stocks to Cash In on Downward Trend
A plethora of risks including slowdown in the global economy, rate hike hysteria and broad-based sell-off in tech and biotech stocks has not only kept the Nasdaq firmly in correction territory but is also threatening to drag the index into a bear market.
However, whether the Nasdaq will continue to plunge further depends on the pace of domestic economic growth. If the U.S. economy sinks into recession, then the tech-heavy index might fall deeper into the negative zone.
But Fed Chairwoman Janet Yellen said that the probability of a recession this year is a meager 10%. Moreover, when it comes to tech and biotech stocks, they mostly have solid fundamentals and a strong profit trajectory. Since the long-term trends bode well for stocks listed on the Nasdaq, it would be wise to invest in such stocks that are poised to grow in the near term but are currently trading at a cheaper price. By purchasing stocks following a dip, investors are essentially buying shares at a discounted price.
With the help of our new style score system, we have short listed Zacks Rank #1 (Strong Buy) stocks with a Growth Style Score of ‘A’ that hold immense growth potential despite declining in recent weeks. Our research shows that stocks with a Growth Style Score of ‘A’ when combined with a Zacks Rank #1 offer the best investment opportunities in the growth investing space.
LogMeIn, Inc. (LOGM - Free Report) provides cloud-based services for individuals and businesses. LOGM is poised to grow despite declining 23.6% in the past four weeks. LOGM has a long-term expected EPS growth rate of 8%.
Extreme Networks Inc. (EXTR - Free Report) provides wired and wireless network infrastructure equipment, software and services for enterprises, data centers and service providers. EXTR is poised to grow despite declining 27.2% in the past four weeks. EXTR has a long-term expected EPS growth rate of 100%.
INC Research Holdings, Inc. INCR is a contract research organization that provides various clinical development services for the biopharmaceutical and medical device industries. INCR is poised to grow despite declining 18.6% in the past four weeks. INCR has a long-term expected EPS growth rate of 18.1%.
Netgear Inc. (NTGR - Free Report) provides networking products to consumers, businesses and service providers. NTGR is poised to grow despite declining 3.3% in the past four weeks. NTGR has a long-term expected EPS growth rate of 10.6%.
LeMaitre Vascular, Inc. (LMAT - Free Report) develops, manufactures and markets medical devices and implants for the treatment of peripheral vascular disease worldwide. LMAT is poised to grow despite declining 13.1% in the past four weeks. LMAT has a long-term expected EPS growth rate of 16.6%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>