Finding Opportunity Amidst a Sideways Slump: Three Stocks for Trading in a Narrow Range Market

Despite absorbing a plethora of bad news – bank collapses, the war in Ukraine, the debt ceiling negotiations, and continuing interest rate hikes – the market has essentially traded sideways for the entire first half of the second quarter. The S&P 500’s highest closing level during that period was 4,169 points on April 28—less than 3% above its low point of 4,056 two days earlier.  At the time of writing this, just before market close on Wednesday, it was hovering around 4,150.

Had someone described the current scenario to you two years ago, you might have assumed that the market would experience a serious negative reaction under these conditions. Thankfully, this hasn’t been the case thus far. Nevertheless, with the market trading in a narrow range over the past six weeks, many of our readers are hungry for some action.

If you, like so many others, are looking for stocks making moves in a narrow-range market, look no further. We’ve identified three names that appear poised to continue bucking the trend, even if this sideways slump extends into a summer slowdown. 

Nvidia (NVDA) 

Most tech investors are familiar with the company’s graphics processing units (GPUs) for the gaming industry.  But Nvidia has a myriad of strengths beyond that.  Over the years the company has invested heavily in relevant segments such as AI and machine learning.

Since tech firms tend to be cyclical, NVDA wouldn’t necessarily be the best choice for investors seeking stability. However it does offer attractive financial metrics. Its three-year revenue growth rate soars above most of the competitions at 34.5%.  Its book growth rate during the same period came out to a robust 21.6%.  Plus, the enterprise features a profitable framework. For example, its net margin is 16.19%, ranked better than 67% of semiconductor companies.

The market expects Nvidia to deliver a year-over-year decline in earnings on lower revenue when it reports earnings May 24th.  Will the share price move higher before or after the quarterly release?  We’ll have to wait and find out. NVDA share price is up 8% since April 1st. The stock is also the top performer from the S&P 500 in 2023, with a more than 100% gain YTD.

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Alphabet (GOOG)

Once a domineering market presence, Alphabet suffered a humbling 2022, shedding nearly 40% of its equity value.  However, GOOG stock is up nearly 36% so far this year and remains a compelling consideration, even at its current price. 

Operationally, the tech giant features a three-year revenue growth rate of 22.9%, outpacing 74.35% of its peers.  Further, its FCF growth rate during the same period pings at 27.2%, above 69.61% of the industry.  In addition, its operating and net margins come in at 26.46% and 21.2%.  Both stats rate among the industry’s upper half.  To boot, the company’s Altman Z-Score is 9.11, indicating very low bankruptcy risk.  Turning to Wall Street, GOOG garners a 75% Buy rating from the 51 analysts covering the stock with none of them rating the stock a Sell – possibly an indicator that the underlying fundamentals of Alphabet’s digitalized innovations may be too compelling to ignore. GOOG share price is up 17% since April 1st.

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Microsoft (MSFT)

Whether it’s managing email in Outlook, or building analysis spreadsheets in Excel, Office has made carrying out many computer based tasks easier for all of us.  Microsoft has become so ingrained in everything that we do professionally and personally that it’s a prudent choice when it comes to stocks from the tech sector, which doesn’t always offer the greatest magnitude of safety.

Financially, it’s difficult to argue with MSFT as one of the best stocks to buy during troubled circumstances. Sure, it’s not a great deal anymore on an objective basis. For example, the market prices MSFT trades at a premium at a forward multiple of around 27. However, the company is firing on all cylinders, operationally.  Notably, its three-year revenue growth rate stands at 17.4%, ranking above 71.36% of its peers.  Its FCF growth rate during the same period comes in at 20.5%, beating out 62% of the industry.  Also, Microsoft’s a profitability machine, commanding a net margin of 33%.  MSFT share price is up 9% since April 1st.

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