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3 Best Stocks to Buy After Sizable Drops

Tyler Craig

Not all stock drops are created equal. Some of them spell the end of a trend, the beginning of a correction or bear market. Others are benign and rise alongside mild bouts of profit-taking that prevent a stock from becoming too overheated. With all of that in mind, let’s take a look at some attractive stocks to buy that offer pullbacks of the second variety.

The reason for shopping bullish opportunities is simple. Equities are opening sharply higher this morning after a positive meeting between the U.S. and China at the G-20 summit over the weekend. President Trump and Xi Jinping agreed to hold off on imposing any additional tariffs.

Optimism surrounding the latest turn in the ongoing trade war has investors in a buying mood. The S&P 500 is tagging new record highs premarket. The surge in small caps over the past few trading sessions is also notable.

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I’ve scoured the market and discovered three strong trends that are providing low-risk entry points for the new week. Let’s take a closer look.


Lululemon (LULU)

Lululemon (LULU) stocks to buy


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Source: ThinkorSwim

June’s earnings announcement sparked a breakout to fresh record highs for Lululemon (NASDAQ:LULU) stock. Shares of the apparel company have enjoyed solid gains for 2019, gaining 48% on the year. The recent pullback has returned LULU to the scene of its breakout. This provides a second chance for spectators that missed the initial surge to get in on the ground level.

Last week’s hold of the rising 20-day moving average suggests buyers are indeed willing to defend their turf. In other words, old resistance is morphing to new support. And with that, a revisiting of the prior high at $190.52 seems likely.

To capitalize, buy the Aug $180/$190 bull call spread for around $4.80.


Paypal (PYPL)

Paypal (PYPL) stocks to buy


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Source: ThinkorSwim

Ever since eclipsing its 2018 high in February, Paypal (NASDAQ:PYPL) shares have been on a tear. On the way, its year-to-date gains grew to 38%, outpacing the S&P 500 and Nasdaq Composite by a mile. The trend’s consistency has also been impressive. Although multiple pullbacks have arisen along the way, buyers swarmed to defend the rising 20-day and 50-day moving averages.

With such a long history of dips getting bought, it’s hard to bet against the current one seeing a similar resolution.

If you’re willing to bet PYPL returns and potentially exceeds last month’s high of $120, then buy the Sep $115/$125 bull call spread for around $4.


Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD) stocks to buy


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Source: ThinkorSwim

The semiconductor industry is one of this morning’s biggest winners. And that’s boosting stocks like Advanced Micro Devices (NASDAQ:AMD). With the stock up some 5% out of the gate, I advise against chasing but buying into weakness over the coming days is appealing.

Its long-term trend continues to hold strong. The recent test of the rising 50-day moving average ended successfully with last week’s rally. Because we’ve seen a lot of chop between each of its upswings this year, I like using cash flow plays to profit from time decay, while waiting for the next ascent. The elevated volatility helps boost the potential return on investment of strategies like covered calls and naked puts.

If you’re willing to bet AMD sits above $28 at August expiration, then sell the Aug $28 put for around $1.15.

As of this writing, Tyler Craig held bullish options positions in AMD. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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