When Weakness in Stocks Can Be a Good Thing

Why Selling Can Sometimes Be a Good SignSo far, 2014 has rewarded those companies that are innovative and forward-thinking.

As I recently commented, the stock market is looking for top growth prospects and not necessarily the companies providing the best fundamentals. In reality, companies that have explosive potential for growth in the stock market are in greater demand than those with moderate growth.

This is why high-momentum growth stocks like Facebook Inc. (NASDAQ/FB) and Netflix, Inc. (NASDAQ/NFLX) in the stock market are demanding high and somewhat excessive valuations. (Read “This New Tech-Related Sector Is Hot.”) Yet if the stock market is willing to pay the extreme valuations, you can also trade these stocks, but make sure you also have an exit strategy.

For the investor, the key is to view weakness as a buying opportunity to go in and accumulate new or additional positions in a stock.

One such stock that I feel is worth a look after a sell-off is online coupon provider Groupon, Inc. (NASDAQ/GRPN), which has collapsed to the current $8.00 level and, at this price, is worth a look for the aggressive speculator looking for a possible and likely bounce in the stock.

Groupon Inc. Nasdaq Chart

Chart courtesy of www.StockCharts.com

It’s at a time like this when you should be looking for good upside stocks in the stock market that have, for whatever reason, been sold off but the business remains intact.

Groupon sent investors running for the exits in the stock market after offering weak guidance, which of course, puts into the spotlight questions regarding the validity of its business model.

In my stock analysis, Groupon is merely going through its growing pains. The company has tremendous upside for those willing to put some risk capital forward.

The company provides daily deals on goods and services to its user base via daily mail blasts and through its web site. The company receives a portion of the profits from the deal sold. I have bought deals using Groupon on numerous occasions and feel the business model is intact; albeit, the barriers to entry are not that high but having said that, Groupon has a commanding lead.

Groupon has excellent long-term upside but will, over time, face hurdles, which I feel the company will be able to overcome.

This is why you should look at sell-offs in popular trading stocks as a buying opportunity to buy at a discounted sale price, rather than chase and buy the stock at higher prices.

It’s not magic or a well-kept secret formula to successful stock market investing, but rather just the insight to buy good companies on temporary weakness, such as Groupon.