3 strong mega-cap stocks to buy this winning season
Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) increased their income last night, but that’s not always the case. The earnings season is always a good time to look for opportunities in mega-cap stocks.
First of all, let’s say the reaction to the headlines isn’t always representative of a bad report. Therefore, we would not scratch the bottom of the barrel. Dislocations often occur due to questionable estimates and / or expectations.
To make this point simply, consider that very rarely do the biggest companies provide bad reports. Yet about half of the movements make headlines. The human element is impossible to predict for the gut reaction. Results matter in the long run and that’s part of the thesis today.
When quality mega-cap stocks fall due to emotions or feelings, smart money jumps. I like to take advantage of other people’s weak moments. Not all falling knives are worth catching, but today’s picks are of great quality. The odds are in our favor for the next few months. Nevertheless, there are extrinsic factors, so we should reduce our enthusiasm.
The stock markets are breaking records with a lot of artificial help. This means that they are vulnerable to surprise hiccups. It won’t take much to shake the psyche of the bulls. It won’t be long before they hit the sell button. A snapshot of this happened yesterday during the Federal Reserve conference question-and-answer session. President Jerome Powell just mentioned the word “moss” and it sparked giant red candles.
All this to say that I am optimistic, but we must also be careful. Instead of taking a full-size position, investors should trade in tranches.
The three mega-cap stocks to buy this week are:
Mega-Cap Actions: Microsoft (MSFT)
Source: Charts by TradingView
Microsoft is part of the OG mega-cap stocks group. Then he passed out in boredom until current CEO Satya Nadella took over. He completely transformed the company and adapted it to the new technology subscription model. It is now a thriving business and has a strong position by owning the cloud.Amazon (NASDAQ:AMZN) is still the leader there, MSFT is in second position. It is important for our thesis today because of the digital revolution.
The novel coronavirus pandemic has accelerated the cloud rush. Businesses and even individuals are now rushing to make it happen. The demand for it has exploded and it is not a fad. The trend is developing and has a long track. It’s a big world and we are still in its infancy. The hardware is improving and getting faster to meet the needs. This fits perfectly into Microsoft’s strategies.
This week, the company reported a very good quarter. They increased their profits by 40% and their sales by 19%. As a reward, investors sold it headline. Management, in fact, beat their forecast, but that was not enough. Investor sentiment was the determining factor in the sale of the stock. There was nothing wrong with the report and the management kept too much of their promises.
This is a classic example of an opportunity to take advantage of someone else’s mistake. At this point, it’s important to mention that there could be two more days of sales. The MSFT share could indeed fall to 248 dollars per share. It would make a better starting point for the summer. Those who are familiar with options can start to sell puts below these levels. It is unfair to judge a successful business harshly simply because of unrealistic expectations.
Source: Charts by TradingView
A little like Zoom (NASDAQ:ZM) has become a verb, Pinterest’s activity has grown a lot because of the pandemic. The fact that the whole world is out of work has attracted a lot of attention to its platform. The title fell 15% yesterday on its earnings titles. Judging from this, one would assume that they missed the estimates and this gave bad numbers.
It wasn’t, as they actually beat the sales and revenue estimates. Profits increased by + 210% and sales by + 78% compared to the same period last year. Obviously, they were successful, but investors wanted more. It is wrong to punish a stock by almost 15% in a very strong quarter. There is an opportunity to catch the falling knife.
First, we recognize that the PINS stock is moving rapidly, so it may not be a one day event. The selloff could persist this week and undermine earlier rebound levels from March 5. Buying the stock in this weakness makes sense, but not all at once. It should be making profits by the summer.
Value is potentially an issue. They are always losing money and they have a high selling price. This puts pressure on management to continue to generate growth. It’s a competitive area, so they need to stay relevant. So far there are no worrying signs but criticism will follow.
It’s also important to realize that another hatch might be hiding. If for some reason the stock drops below $ 60 per share, it could trigger a downtrend for an additional $ 8. It’s an unlikely scenario in my book, but I have to admit it’s there.
Mega-Cap Actions: Fastly (FSLY)
Source: Charts by TradingView
Fastly is my last pick of the day and he could be the craziest of them. At $ 8 billion, it’s not quite in the mega-cap category yet. But I’ll include it here as it hits over its weight. The revenues are coming, which leaves a huge question mark for the next two weeks. I say this because when they reported profit last quarter, the stock slumped over 30%. It was right after he had already fallen over 20%. Obviously, the FSLY stock is moving at blinding speeds and it’s not for the faint of heart.
I started today by saying that the reaction to the gains is arbitrary. This, by definition, makes that third choice the weakest conviction of the three. Microsoft and Pinterest shares have already reacted to earnings. Now they can collect and trade on merit. In this case, I bet investors will have the opposite reaction last time around. Therefore, I consider it to be a lottery ticket, so it must be small in size. He shouldn’t break the bank and there is nothing wrong with breaking my heart.
Headlines aside, the price action in FSLY stock is tightening. The bulls have established a little up-down trend. But they are also fighting against a zone of resistance. Management will have the opportunity to give fans the boost they need to come out. The upside potential could be significant. Conversely, just like Pinterest, it must hold the base. If FSLY falls below $ 58 per share, it will go down.
Basically, the business has a great opportunity. They are at the heart of new strong trends. They help deliver content online and that’s where the whole world is going. The migration of old media to new media also has a long ramp ahead. The scope of the market is huge, so all vendors will thrive for years to come. FSLY’s stock isn’t cheap with a sell price of 27, but that’s not a problem yet. The management is generating growth at the moment and it has earned them a chance on this front. Their income has almost tripled in four years.
At the date of publication, Nicolas Chahine did not hold (either directly or indirectly) any position in the securities mentioned in this article.
Nicolas Chahine is the Managing Director of SellSpreads.com.