Are you familiar with the term “The January Effect”? It refers to a theory that stock market prices seasonally increase during January. This could occur for various reasons, including investors taking advantage of lower prices that occur in December when tax-loss harvesting is a factor.
There’s also the possibility that investors are using their year-end bonuses to add shares in January. Thanks to The January Effect, whatever the case may be, it’s essential to be aware of a potential rally to start 2022.
While the current market environment might not seem all that attractive to investors with some cash on the sidelines to put to work, sentiment can change in the blink of an eye. Staying prepared with a strong watch list of stocks and dry powder to deploy once equity markets start acting better can pay off as we head into a new trading year.
There’s a good chance that some of the beaten-up stocks from 2021 will have a revival of sorts in January and beyond, as investors try to generate alpha from areas of the market that offer intriguing risk to reward profiles. That’s why we’ve put together a brief overview of 3 beaten-up stocks to buy for the January effect. Let’s take a closer look below.
1. Zoom Video Communications
Zoom Video (NASDAQ:ZM) was undoubtedly one of the biggest winners during the pandemic. Still, the stock has been taking a beating throughout 2021 as the world reopened and people started heading back to classrooms and offices.
While it’s always difficult to call an exact bottom in a stock, one could argue that the selloff in Zoom has been overdone and that shares could be due for a rebound in the coming months. The company provides a communications platform that connects people through video, voice, chat, and content sharing and has still been putting up impressive earnings growth over the last few quarters.
Most recently, Zoom Video reported Q3 revenue growth of 35% year-over-year to $1.051 billion, with new customers accounting for 74% of revenue. Some analysts believe that people's work has permanently changed after the pandemic. Zoom is the type of company that should continue to thrive as more enterprises lean on hybrid office/remote work models.
It’s also worth noting that Zoom is spending heavily on R&D to offer new products to its existing customers. The company is already benefitting from upsells of Zoom Phone and Zoom Rooms. Keep an eye on Zoom in the coming sessions, as it’s a disruptive company that could be in for some upside to start the year.
2. Block Inc
Companies in the digital payments industry have seen their share prices obliterated over the last few months, and Block Inc (NYSE:SQ) is a good example. The stock simply has not been able to find a bid lately, and shares are getting to extremely oversold levels.
A lot of this has to do with the overall perception of the macroeconomic picture, as factors like rising inflation and a slowing economy could negatively impact these businesses in the near term. With that said, the digital payments industry isn’t going anywhere and is poised for massive growth over the next decade, particularly when you consider how electronic payments can grow overseas.
The major selloff in companies like Block might end up being a fantastic long-term buying opportunity, although investors should still be careful about adding too much exposure.
This technology company, formerly known as Square, focuses on financial services products including Square, Cash App, Spiral, Tidal, and more. Square is hardware that converts iPads into payment terminals and helps entrepreneurs run their business's finances more conveniently.
Another popular offering from Block is Cash App, which allows consumers to send, spend, and store money on an application and even buy and sell Bitcoin. While shares of this innovative fintech company have been sold relentlessly, it’s worth noting that the company reported gross payment volumes up 43% in Q3 and saw net revenue increase by 27%.
It’s also an intriguing “reopening play,” as many of Square’s merchants should benefit from people heading back into the public after the pandemic. Original Post