The stock markets around the globe have been in the midst of a multi-week sell-off that has 7% off the technology-heavy Nasdaq Composite. Within the index, many of the leaders have fallen much more and the question now is whether investors should be buying into the weakness or running for safety.
Tutorial: Intro To Technical Analysis
Unfortunately the answer is not a simple buy or sell. The answer lies in the middle. There are a number of stocks that have broken key support and at this time should be sold and are not considered buying opportunities. On the flip side, a basket of stocks are now sitting on support after completing what appears to be a normal, healthy pullback from recent highs.
Five technology stocks that meet the latter criteria were generated through one of my daily stock scans and they are listed below.
Electronics for Imaging (NASDAQ:EFII) provides products and services for the print management sector. The small cap stock has had a good run the last two years where it doubled in price, but recently fell 13% from a multi-year high. The stock pulled back to support at the $16 level and is now flashing a 'buy' signal. Fundamentally the stock is trading at a very reasonable 12.8 forward P/E ratio and price-to-sales of 1.44.
ClickSoftware Technologies (NASDAQ:CKSW) offers workforce and service management software solutions. An example would be software that optimizes scheduling of goods. The stock hit a new all-time high in late May and has since pulled back 13% and is now sitting on the 50-day moving average at $9.25. The volume on the sell-off was less than the rally, suggesting a bounce is imminent. A forward P/E ratio of 15.7 is attractive, but the price-to-sales of 3.91 is a bit high. (For more, see Top 7 Technical Analysis Tools.)
Mercadolibre (NASDAQ:MELI) is often referred to as the eBay (NASDAQ:EBAY) of Latin America. The stock, which hit a new all-time high earlier this year, has been hit hard during the last week due to election results in Peru. A 15% drop in four days has scared many investors; however, I feel this is a buying opportunity for the aggressive investor. The company is valued high with a forward P/E ratio of 36.4 and price-to-sales of 14.89; however, the growth story is one of a kind. Look for strong support on the chart at the $75 area.
Nuance Communications (NASDAQ:NUAN) offers voice and language solutions to customers around the globe. Their dictation and transcription services are used in cell phones, navigation devices, etc.The stock trades with a forward P/E ratio of 13.6 and price-to-sales of 5.1. Technically the stock is 10% from a 15-year high that was hit in early May on takeover rumors. The rumors continue to float around and with the stock off the highs it is offering a buying opportunity.
The Bottom Line
The stocks mentioned all have one thing in common - they are above average beta. This suggests they will move at magnitudes above the average market fluctuations. Therefore, investors must realize the risk when buying and even more importantly know that a stop-loss order is critical to protect against any continued. (For more, see Introduction To Technical Analysis Price Patterns.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!