Buy This Stock After the Tech Rout

VMW shares could be on sale right now, if past is prologue

Jul 31, 2018 at 1:54 PM
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Tech stocks recently had a rough stretch, as evidenced by the rare divergence between the Dow and Nasdaq last week, not to mention the indexes' ugly session on Monday. However, the recent pullback in tech stocks could be a buying opportunity, if you look close enough. One stock that looks ripe for a rebound is virtualization specialist VMware, Inc. (NYSE:VMW). Here's why you should consider buying the dip on VMW stock.

VMware stock notched a record closing high of $162.02 on July 2 -- within striking distance of its late-January record intraday peak of $165 -- after Dell Technologies (DVMT) announced plans to buy its VMW tracking stock. Since then, the equity has given back roughly 12% to trade around $144.78.

VMW is now within one standard deviation of its 80-day moving average, after a lengthy stretch above this trendline. After similar retreats to the 80-day, the shares went on to rally 10.74%, on average, the subsequent month, and was higher 83% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Another pop from current levels would put VMware stock back north of $160.

VMW stock chart july 31

Should the security once again bounce from this trendline and resume its quest for new highs, there's still plenty of room on the bullish bandwagon. Despite rallying more than 56% in the past 12 months, VMW remains saddled with nine "hold" or worse ratings from analysts. A rebound on the charts could spark a round of upgrades to lure more buyers to the table.

In addition, short sellers could continue to hit the bricks. Short interest on VMware depleted by more than 15% in the past two reporting periods. However, 15.4% of the security's float remains dedicated to short interest, representing about four sessions' worth of pent-up buying demand, at VMW's average pace of trading. An exodus of lingering shorts could also bode well for the shares.

 

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