As most investors know, August wasn’t a great month in the markets. The Dow, S&P 500, and Nasdaq lost 2.4%, 1.7%, and 2.2%, respectively. If not for a late-month rally, it would have been worse.
Historically, September is the worst month for stocks. In the past five years, according to Investor’s Business Daily, 11 stocks outperformed the S&P 500 in each of those years. Of those 11, only six made money every year—the other five lost money, just less than the index.
As I write this on Wednesday, midway through the afternoon trading session, the index is down 0.8% through eight trading days. Given the consistently poor showing by stocks in September, the losses nearly halfway through September are acceptable.
With that in mind, I’ve searched for two stocks that have lost ground for five consecutive trading days that might be worth buying on the dip. As a bonus, I’ll consider possible option plays to lower your out-of-pocket expenses.
Here goes.
Phreesia
I’d be lying if I said I was overly familiar with the healthcare software provider’s SaaS-based platform. It helps medical groups and health systems more efficiently process patient visits.
Anyone who’s gone to the doctor knows how excruciatingly slow it can sometimes be. Phreesia (PHR) is trying to fix that. However, while it’s growing nicely, the current market environment isn’t very sympathetic to money losers.
As a result, PHR stock is down more than 34% year-to-date, much of it in the past five days. As recently as late January, its share traded above $40.
Analysts seem to love it. Of the 15 covering it from Barchart.com data, 13 rate it either Moderate Buy or Strong Buy (4.60 out of 5), with a $37.60 mean target price, 86% higher than where it’s currently trading.
Phreesia reported Q2 2024 results a week ago. It beat on both the top and bottom lines. Revenue was $85.8 million, $1 million higher than the consensus estimate, while its 68-cent loss per share was seven cents better than analyst expectations.
The company expects full-year revenue of at least $353 million, 26% higher than a year earlier. I guess investors didn’t like that it didn’t raise its revenue outlook. Given nobody knows what the economy will look like heading into 2024, I think it was prudent of management to hang back and be conservative. You can always change your forecast when the picture is clearer.
Like I said in the intro, you’ll need some liquid courage.
As for its options activity, volume is light today at 22 puts and calls. However, its 30-day average is also light at 124.
Of the six options showing activity today, the Dec. 20/2024 $40 strike looks the most appealing. With 464 days to expiration, you’re plunking down just 3.5% ($1.40 ask) of the strike price.
Meanwhile, the delta is 0.21592, which means you can double your money on the call without exercising your right to buy the shares after its shares rise by $6.48, a 32% appreciation from its current $20.20 share price.
American Eagle Outfitters
I recently selected American Eagle (AEO) as one of two consumer stocks exhibiting unusual options activity and could be had for a meager price of $17.
That’s right, the apparel retailer’s Nov. 17 $20 call had a $0.17 ask price. At 0.9% down, I thought it was a low-risk way to bet on its resurgence. With a free cash flow yield of 14.3%, you won’t find too many better bargains generating positive cash flow.
As I write this, AEO stock is down more than 5% on the day and nearly 13% over the past five days. Over the past year, it’s up more than 40%. Its shares have traded below $20 for the past 18 months. Regression to the mean suggests it could get back there in 2024.
Analysts aren’t keen on American Eagle. Of the 10 covering it in Barchart.com’s database, only two rate it a Moderate Buy or Strong Buy (3.10 out of 5), with a mean target price of $16.41, just 10.4% higher than its current share price.
Interestingly, AEO is suing the former owners of the San Francisco Centre. It has a store in this San Francisco area mall. It is alleged that Westfield spent more than $2 billion upgrading other malls in California but left that mall in disarray, hurting American Eagle’s sales at the store.
Investors can expect more retailers to undertake these tactics with mall owners in the future. Rather than blaming the criminals, it makes sense to go after the people who could control the situation but didn’t.
AEO remains an excellent value play for patient investors used to above-average risk.
As for the option play, I see that the Sept. 22 $15 call has a Vol/OI ratio of 53.5x. Unfortunately, its volume is just 107, so it doesn’t make Barchart’s main page for unusual options activity.
Nevertheless, for 1.9% down ($0.29 ask), you’ve got nine days for the share price to move 2.8%. The odds are good that you’ll be able to exit your call before Sept. 22 with at least $29 in your pocket, covering your low-cost investment.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
