Some of last month's biggest losers could reverse course in August, two traders say.
Energy and travel stocks were some of the worst performers in July, weighed down by worries around the spread of the Covid delta variant.
Las Vegas Sands, Diamondback Energy and Carnival Corp. were some of the S&P 500's top laggards, down 20%, 18% and 18%, respectively.
One lesser-known name that ended July in the red has the potential to break out this month, Chad Morganlander of Washington Crossing Advisors told CNBC's "Trading Nation" on Monday.
"What we would suggest you do is avoid the low-quality names at this point in the market cycle and you look at a company like Baxter," a health care equipment company, said Morganlander, his firm's co-founder and senior portfolio manager.
While many energy and travel stocks tend to have high levels of debt and uncertain earnings forecasts, Baxter has low debt, high visibility, is "consistently growing [and] consistently profitable," he said.
Baxter's stock is down nearly 6% since the start of July.
"They have roughly $13 billion in revenues and they're growing. And they're going to be growing in a rather consistent manner. The valuation makes sense also, trading at a forward-looking [P/E] of 19 times," Morganlander said. "That's what you want to buy at this point in the market cycle."
Another under-the-radar name stood out to Oppenheimer's head of technical analysis Ari Wald.
"You want to be tactical, you want to buy pullbacks, but you want to buy in when there's long-term strength behind it, when there's macro conditions favorable for those themes as well," Wald said in the same interview.
His pick was software stock Digital Turbine, which fell by more than 17% in July.
"What separates it from the other stocks is that there's macro trends that support it," Wald said of the $6 billion mobile advertising company, citing its high growth profile and ability to withstand volatile rates and commodity prices.
"After the big run-up it had at the start of the year, it corrected very sharply from February to May and now it's building a base above its 200-day moving average and we think showing signs of turning up," Wald said.
"For us, the key level's $62. That's the 200-day average," he said. "For traders, I think you place your stops there, but otherwise, it checks all the boxes, it's also pulled back, there is opportunity here and with it, some longer-term strength behind it."
Digital Turbine ended trading up just over 1% at $63.65 on Monday.
Disclosure: Washington Crossing Advisors owns shares of Baxter International in its Rising Dividend Portfolio.
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