I Wish We Had Better News - A Look at Former Growth Stock Leaders

After in some cases 4 or 5 quarters of negative price returns, with as much as a 70%-80% drawdown off all time highs, surely some deflated growth stocks like W, SHOP and TEAM are good longs here? Unfortunately, according to our price model, we won’t see a bottom in most of these former growth darlings until later this summer. One of the best ways to destroy capital is by entering a deflating bubble stock too soon, see OXY’s sojourn from $86 to $9 between 2019 and 2021 or any of the stocks that didn’t survive the 2000 tech bubble if you don’t believe me. In 2000, some stocks doubled five or six times on the way to zero.

We looked for every possible way to make a bullish call on fallen growth names, nobody wants to hear about how a stock that’s already down 80% is going down another 20%-30% over the next 60-90 days. We also don’t want to get caught being bearish into lows, that’s bad for business. According to our model though, that seems to be the state of the market for the next 2-3 months, whether we like it or not. The good news I suppose, is while distilling our reports into price targets over time, it does look like ROKU is poised to see a bounce to 110 but even then, that could take several months to play out. Its not much yet, but the six health factors are trying to make some progress into positive territory. That could be slow going, but we do see stability and higher prices ahead for ROKU at least.?You can see in the graphic below that all of the SynerAI health factors for Roku are trending below in negative territory.

While there was only 1 long candidate in our basket of former growth leaders, there is a laundry list of downside candidates. The table below shows some of the worst forecasted performers over the next 30-90 days. It is somewhat remarkable that we have substantial downside targets across almost every single name. That further reenforces the idea that we have not seen an intermediate bottom in equity markets in general. In terms of largest downside, we see a 31% drawdown in Wayfair (W) stock over the next 60 days. According to our six health factors, W is sputtering across the board with no meaningful signs of recovery. Two other of the top forecasted losers are Atlassian Corp(TEAM) and Fortinet (FTNT) where we are looking for 25% or greater drawdowns over the next 60 days. Our health factors tell a similar story here as they roll further negative from already negative territory. See the health factor graphics following this article.

Since volatility is so high across much of the equity options market, buying 20% out of the money puts expiring in 60 days in these names isn’t that interesting of a trade because the breakeven moves necessary to profit are quite elevated. One way to avoid paying for elevated options further out of the money is to express these trades via put spreads. For example, the July 15th 160/125 put spread for TEAM costs roughly 5$ according to E*TRADE and should offer significant upside if our forecast of 123 is reached by mid-July.

As with our last piece discussing our bearish view of the semiconductor sector over the next 2-3 months, I wish we had better news for longs. According to our data, most of these fallen growth names are another part of the market that are not quite ready to recover. We do reiterate the fact that all our price targets, which are derived on a company-by-company basis and not on a macro level are uniformly bearish, usually not a good sign.

For SynerAI data tables and graphics mentioned in this article, please see below. And visit www.synerai.com to learn more about AI-powered investment insights.