3 Buy the Dip Candidates to Add on Market Weakness

May
5, 2021

4 min read

This story originally appeared on MarketBeat

Buying the dip means that you are purchasing an asset or security after it has dropped in price. The idea is that by adding shares of high-quality companies at discounted prices, you can take advantage of bargains and lower your average cost of big positions in your account. With that said, there’s a fine line between buying the dip at the right time and catching a falling knife. It’s important to focus on buying dips of stocks that are in clear long-term uptrends and to define your risk on each purchase just in case there is a big trend shift in the overall market.

We are seeing some market weakness to start the month of May, which means now is a great time to start putting together your shopping list of companies that you’ve been waiting to add at lower prices. These aren’t necessarily stocks that have already dropped a lot in value, but rather stocks that you should feel comfortable with buying should they dip in the coming weeks. Let’s take a look at 3 buy the dip candidates to add on market weakness.

Northrop Grumman (NYSE:NOC)

This leading defense and aerospace company has shown incredible strength this year and is a great company to consider adding on dips. It’s the type of company that investors can buy with conviction, thanks to the fact that it’s an industry leader and a business that will grow regardless of economic conditions. Northrop Grumman earns the majority of its revenue from government contracts and has four main operating segments, aeronautics, defense systems, mission systems, and space systems. It’s also one of the best values in the S&P 500 at this time given that the stock currently trades at a 14.81 forward P/E.

Northrup Grumman is up over 24% year-to-date and the company reported strong Q1 earnings that should give investors even more confidence to add shares on dips. The company saw its sales increase by 6% to $9.2 billion and net earnings increase by 153% year-over-year to $2.2 billion. Perhaps most impressive was the company’s growth in its space business, which generated total revenue up 29% year-over-year. Finally, the fact that this stock continues to show relative strength in a weak market tells us that it’s a company in high demand.

Cigna Corporation (NYSE:CI)

There’s a lot for investors to like about this buy the dip candidate, which is the second-largest U.S. employee benefits organization in terms of total revenues. Cigna Corporation offers health care products and services as well as group life, accident, and disability insurance. It’s a quality name in the health services industry that should see a nice bump in top-line growth this year as unemployment levels improve. Since the company provides medical membership coverage to tons of commercial customers, Cigna stands to benefit greatly from a rebound in the labor market.

Cigna also recently acquired Express Scripts, a pharmacy benefit management organization, which resulted in creating one of the biggest providers of pharmacy benefits and insurance plans. This move should result in nice long-term growth opportunities and cost synergies and is another reason to consider adding the stock on dips. Finally, the fact that the stock offers a 1.59% dividend yield is another great reason to add this company to your long-term investment portfolio.

Facebook (NASDAQ:FB)

Technology stocks have not been the place to be to start the month of May, but that doesn’t mean you should avoid them entirely. Companies like Facebook are getting more and more attractive as their price dips along with the NASDAQ index. The social media giant is a great buy-the-dip candidate thanks to its ridiculously strong earnings and the fact that it is one of the most undervalued mega-cap tech companies based on P/E ratios. Facebook operates the world’s largest portfolio of social networking websites including Facebook, Instagram, Facebook Messenger, and WhatsApp.

The company has changed the way that advertisers sell products thanks to its data-driven direct response advertising and is benefitting from a nice rebound in ad spend following the pandemic. Facebook’s Q1 earnings were nothing short of impressive, as the company reported a 48% increase in revenue and a 93% increase in diluted EPS. The stock gapped up big after the earnings release but has started to pull back, which means that investors should possibly look to add shares shortly after the selloff subsides.

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