November is a particularly interesting time on the stock market, usually entailing excellent opportunities to "buy the dip" of stocks that are likely to appreciate in value ahead of the festive period. The market seasonality factor is especially prevalent at this time of the year as investors scramble to improve the performance of their portfolios by the end of the fiscal year.
This typically leads to heightened trading activity resulting in surging liquidity levels. Under these conditions, it makes sense to buy otherwise undervalued stocks, which are likely to benefit from this bolstered market activity.
With all of that in mind, here are our picks of the top three undervalued stocks to buy in November:
Our first choice is American Airlines (AAL). The company's share price tumbled last year in the wake of the coronavirus market crash, owing to a wave of international closedowns and stymied the tourism industry globally. The share price plunged by more than $15 as a consequence of the travel restrictions, bottoming out near $12 per share.
In light of the improving conditions worldwide, governments have started to lift their restrictions, and a crucial milestone was reached recently with the return of flights from London to New York. All of this presupposes a probable increase in the operations of airliners, which is very likely to reflect positively on the share price of AAL as well. Moreover, this is happening ahead of the festive period, which is a time when international travel usually peaks.
Given that the price action has been consolidating above the psychologically significant support level at 20.00 without breaking lower over the last several months, there seems to be a confluence of mounting bullish technical and fundamental factors.
Traders and investors can therefore look for a chance to buy AAL shares around the 23.6 per cent Fibonacci retracement level at 20.05, converging with the psychological support, in anticipation of a subsequent pullback towards the 38.2 per cent Fibonacci at 27.47. The latter underpins the upper limit of a major support-turned-resistance area (currently in red).
If the share price manages to break out above it, the new uptrend is then likely to head towards the next major target - the 61.8 per cent Fibonacci at 39.48. The latter, in turn, is positioned quite close to the psychological resistance at 40.00, making it an even more prominent target.
The months of November and December are crucial for big retailers as this is when demand tends to soar to its highest levels throughout the year. This is also the case with Foot Locker (FL), the American sportswear and footwear retailer.
The current investors' optimism is additionally being bolstered by the recent acquisition by Foot Locker of the Japanese retailer Atmos for $360 million. Both factors are substantial enough to terminate the correction on the weekly chart above.
The bearish Flag pattern started developing from the previous swing peak at 64.00, whose significance was confirmed when it served as the termination point of the previous uptrend. Notably, it was structured as a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
The Flag rebounded from the 47.00 support level recently, which underpins the major resistance-turned-support area (currently in green). This is where a decisive bullish reversal is most likely to occur.
Last week's uptick in the share price, prompted by the Atmos acquisition, is currently testing the upper limit of the Flag, which is where investors can seek to go long. A breakout at the present level would then most likely be followed by an upswing towards one of the two limits of the last Distribution range. The one is the psychologically significant support at 60.00, which served as the swing peak of the (2-3) impulse leg of the Elliott pattern. The other is the 64.00 resistance level, as mentioned earlier.
Our last pick is the American tobacco producer Altria (MO). As can be seen on the weekly chart below, the company’s share price recently broke out above a major downtrend, underpinned by the descending channel (in red), indicating the beginning of a new uptrend. This bullish confirmation represents an excellent opportunity to buy the recent dip.
What is of particular interest is that the downtrend was comprised of clearly defined waves with easily recognisable dips and peaks. This behaviour of the price action is noteworthy because it signified strong bearish commitment at the time of the downtrend's establishment. This makes the recent breakout above the channel's upper limit even more significant.
This pattern was broken with the observance of the consecutively higher swing lows, which confirmed the beginning of a new uptrend (illustrated by the ascending trend line in green). The price action is currently consolidating within the boundaries of a narrow range, spanning between the major support level at 44.00 and the psychologically significant resistance at 50.00.
While traders and investors can go long around the Accumulation's lower limit, they need to take into consideration the possibility of more adverse fluctuations to the trend line. That is why the eventual decisive breakout above the psychological resistance at 50.00 would be the most significant determinant of the beginning of a new uptrend.