The NASDAQ 100 index closed yesterday at 14,172 points. After closing the first Monday in January at 16,501 points, this reflect a fall of just over 14%. Back in 2008, the index fell 9.9%, to register the then-worst January on record. Although there are still a few trading days left in the month, it does look like this will take the biscuit as the worst January ever. With that in mind, here are some of the best stocks that I’m considering to buy given the fall.
Reasons for the slump
Before I get into the stock specifics, I think it’s important to understand why the market has been falling. From this, I can then gauge which stocks I need to stay away from, versus others that have simply been caught up in the negative sentiment.
The main reason for the slump in January is down to investors expecting a much more hawkish US Federal Reserve. This means that people are expecting the central bank to raise interest rates more than previously expected last year. In the latest update last night, it looks like the Fed is going to raise interest rates in March, and then several times later this year.
These higher rates are needed to combat the high (7%) rate of inflation in the US. However, increasing rates quickly has historically been negative for stocks. This is because it increases the cost of borrowing for large corporations. It also provides less of an incentive for individuals to invest versus holding cash.
The best stocks I’d buy
On the basis of the above reasoning, I’m not looking to buy a tracker fund of the NASDAQ. Some stocks in the index have a lot of debt, which will get more expensive to service with higher rates. However, there are some selective stocks that I do think have been oversold in January.
Take Amazon (NASDAQ:AMZN), as an example. The share price is down 18% over the past month, putting it down 14% over a one-year period. Even though the Q3 results weren’t amazing, this is by the lofty standard that Amazon and the market has set. Net sales still increased 15% year-on-year, to pass the $100bn mark again ($110.8bn).
It’s also an incredibly profitable company, without high levels of debt. I’d be happy to pick up some Amazon shares as part of this NASDAQ slump. When I look out a year or more, I think that Amazon shares will bounce back. This is because there is a dislocation between the performance of the company and the performance of the share price.
Another one of the best stocks I’m considering to buy is Rivian Automotive (NASDAQ:RIVN). I recently wrote about the reasons why I like the company. Since the IPO last November, the share price had doubled but is now back below the IPO price. I think that electric vehicles are the future, and so I see this dip as a good opportunity to invest in the sector for the long term.
The risk with buying either stock now is the fact that negative sentiment could cause both stocks to continue to fall. There’s nothing to indicate that the sell-off has finished. I need to be aware that even though I think these stocks are good value, I could be holding an unrealized loss for a long period to come.
Jon Smith has no position in any stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
