3 Tempting Selloffs: Are They Tricks or Treats?

When a stock sells off, i.e., suffers a sustained downtrend, it can be for good reason. A negative press release or unfavorable industry dynamics are just two examples.

Other times the selloff can be overdone. This commonly occurs when market participants overreact to negative near-term news and lose sight of a company’s longer-term opportunities.

While the major indices have rallied back towards record highs, not all stocks have joined the party. In fact, over the past month, a bunch of stocks has endured major downturns of 20%, 30%, or more. This presents the question of whether or not to buy the dip in such stocks.

Like a pillowcase full of undesirable Halloween candy, you never want to be caught holding a bad bag. Conversely, you hate to miss out on great buy opportunities. Let’s look at whether these three dips are tricks or treats.

Will Novavax Stock Recover?

Novavax (NASDAQ: NVAX) shares are down approximately 40% over the past month. On Wednesday, the biotech gapped lower in heavy volume on reports that its COVID-19 vaccine is facing production delays. Not the first time the company has had problems with getting its vaccine off the ground, the most recent hurdle relates to an inability to meet the quality standards of U.S. regulators.

Despite the bad headline, management tried to assure the market that it will still be able to make its vaccine and adhere to regulatory filing deadlines. The reassurances have mostly fallen on deaf ears.

There is at least one Wall Street analyst who thinks this has created a buy opportunity. Cantor Fitzgerald reiterated its overweight rating and $272 price target on Novavax which points to a potential two-bagger. The firm asserted that Novavax is wrapping up its regulatory filings that once submitted they “will dissipate the debate of vaccine quality”.

Novavax’s COVID-19 vaccine is clearly its biggest growth driver and much hinges on the success of this product. It is important to keep in mind though that its NanoFlu vaccine and pipeline of other infectious disease product candidates also hold great promise for the long-term.

Trick or Treat? Treat

 Is Bed Bath & Beyond Stock a Buy?

Bed Bath & Beyond (NASDAQ: BBBY) is trading near a 52-week low after suffering a crippling blow late last month. The retailer missed badly on second-quarter earnings as consumer traffic unexpectedly slowed late in the period. This prompted management to lower its full-year outlook accelerating the stock’s descent.

The question with Bed Bath & Beyond is whether these challenges are temporary or the start of a sustained downtrend. On the plus side, the slowdown was tied to rising delta variant cases particularly in key states like California, Florida, and Texas. So, with caseloads gradually improving nationwide and the holiday shopping season ahead, customer traffic is bound to pick up.

On the negative side, Bed Bath & Beyond still has a lot of work to do to catch up with competitors who have done a better job of enhancing their merchandise assortments and online storefronts to meet the demands of modern consumers. Cost and debt pressures also continue to weigh.

Moreover, the elephant in the bedroom is that Bed Bath & Beyond appears to be losing relevance in the retail world. Shoppers are flocking to Amazon and other e-commerce outlets like never before. And although Bed Bath & Beyond’s digital capabilities are improving, it will be difficult to gain ground in this consumer environment while playing from behind.

Of course, as a popular meme stock, there is always the possibility of another social media-fueled rally. Barring this, however, investors are better-served shopping elsewhere.

Trick or Treat? Trick

Is it a Good Time to Buy WalkMe Stock?

After climbing above $34 last month, recent IPO WalkMe (NASDAQ: WKME) has seen $10 shed from its share price. The provider of software that supports digital transformations hasn’t had any major developments to prompt the decline which is good news for investors.

WalkMe’s cloud-based Digital Adoption Platform has the potential to change the way consumers and employees conduct business online. It has already amassed nearly 1 billion users which represents a solid foundation for recuring subscription revenue growth.  And with organizations of all shapes and sizes just starting to embrace digital adoption software to improve user experiences, the growth runway is long in this $34 billion market. Research firm Gartner estimated that by 2025, 70% of organizations will use solutions such as those offered by WalkMe.

During the stock’s recent slide two sell-side firms have called WalkMe a ‘buy’. Their $40 and $42 target prices suggest at least 60% upside. The company is gaining traction in a nascent but fast-growing software niche that will be an important part of the digital transformation for years to come. The current $2 billion valuation is reasonable if not inexpensive and the stock’s recent bounce off a double bottom is bullish.

Trick or Treat? Treat