Benzinga - Stock picking is a simple yet sophisticated art.
Simple tends to get misunderstood as easy, and the sophisticated part tends to get overlooked.
As the saying goes, investing/trading is simple but not easy. The best techniques are simple to learn and execute, far more straightforward than people realise, but the consistency and patience you need to put a portfolio together is often a challenge.
Let’s start with PayPal Holdings Inc (NASDAQ: PYPL).
It has a net worth of $90 billion in 2023. It provides services to almost all the countries that use the online payment system. In 2022, it also ranked number 143 under the lust Fortune 500 as the largest United States company in revenue. There is no disputing it is a powerhouse of a company. Throw in Elon Musk’s part in its success, and you have a diehard fanbase.
However, putting that aside, the stock price tanked by 75% from an all-time high in July 2021 at $310 to the low last year at $23.
What does this tell us?
No matter your analysis or opinion of a company, a stock is only a piece of paper and is worth what someone is willing to pay for it.
And if a stock is on its way down, it is only likely to continue heading down until it dictates a reversal.
The best way to determine a reversal from bearish to bullish for a stock that has tanked is to use the weekly 200 simple moving average (w200sma).
Below I have the weekly timeframe
The price of PYPL has to climb over 100% to see it comfortably trading above its w200sma. How long it will take to get these is beyond us. It is currently trading inside a 6-month consolidation which it could remain in for the foreseeable future.
And this is why I present to you Cadence Design Systems Inc (NASDAQ: CDNS).
It is an American multinational computational software company founded in 1988 by the merger of SDA Systems and ECAD, Inc. The company produces software, hardware and silicon structures for designing integrated circuits, systems on chips (SoCs) and printed circuit boards.
In 2021, it generated revenue of almost $3 billion. It is no small company.
There is a high chance you have not even heard of CDNS.
Below I have the monthly timeframe.
Let’s look at the numbers.
- It has moved up 8,300% since the 2008 low. An excellent performance history of trends.
- It corrected by only 31% in 2022.
- It is only 7% away from its all-time high.
- It is outperforming the Nasdaq 100, which is 41% away from its all-time high.
It is not uncommon to see stocks move 100% once they break out.
For example, I have been holding McKesson Corp (NYSE: MCK) since December 2021. I entered at $250, and it is now trading at just under $400. With the stock market showing positive signs of a bull revival, MCK has every chance of moving to $500 and beyond.
If CDNS breaks and closes above $200, I will not be surprised if it moves to $400 over the next 12 to 24 months. This is my average holding period for a stock.
So based on today’s analysis, CDNS is my preferred stock pick.
I will take a position once the stock confirms $200 as resistance and the S&P 500 has also moved up another 3%+.
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