The market disappointed so much in 1HCY2022 that the last few weeks have come as a big relief for Long only investors/traders. There is follow-through buying happening despite concerns around the US-China conflict. You must be wondering what has changed. It’s traders’ enthusiasm and some +ve newsflow like cool off in commodity prices and new legislation. The three themes driving the market right now:
- Inflation Reduction Act Bill of 2022
- Chips Act
- Earnings Surprise
Here’s how some of the well-traded large-cap stocks behaved over the last six weeks. The list will help you understand how trades unfolded, where the opportunities are and how should one keep an eye on potential opportunities and risks. This is a 3 part weekend series. This blog only covers Large cap stocks i.e. stocks with a market cap of more than $10 billion. The trading ideas here are suitable for investors who want to invest in stable steady companies.
AMD is up 40% from the support levels
AMD continues to grab market share from Intel and so every market correction becomes a buying opportunity. AMD was at $74 a month back and now it trades near $102. I recommended it back then near 74. Also considering the market we are in, I will take a profit in the $105-$110 range
Ford continues to climb higher on strong earnings
Ford delivered strong business performance and the stock gapped up at 13.6. It became buy and hence I recommended it. The stock since then has quietly climbed to 15.3. The stock got a further boost from strong US sales for the month of July. Sales climbed 37%. Ford’s increase in U.S. monthly sales was driven in part by a 169% climb in electric-car sales and a 70% jump in SUV sales. With so much focus on climate change, the stock should continue to do well.
Uber is generating cash and the market loves it
Uber stock has been relentlessly running since it delivered a profitable quarter.
Uber posted a net loss of $2.6 billion but the stock has rallied like crazy post earnings. 🤔
Why?
Because the core business delivered a net profit of $364 million, compared to a net loss of $509 million in the prior-year quarter.It generated free cash flow of $382 million
— Deepak Singh (@smarket) August 5, 2022
I thought of picking up the stock post-earnings but the stock never pulled back. It’s on my radar and would love to add it on declines. I will buy if it declines to 29
Nokia delivered Earnings momentum but the stock is moving very slowly
Nokia delivered +ve earnings surprise thanks to strong sales of its telecommunications equipment in North America. The company reported an 11% increase in second-quarter sales to 5.9 billion euros, compared with a year earlier. Profit rose 31% to €460 million. It was good enough for the stock to Gap up and then sustain. I recommended the stock near 5.1 but the gains since then have been extremely slow.
Nokia recently got the contract for 5G Deployment from Bharti Airtel.
PLUG has a strong Price Momentum
One Large cap stock that has done really well over the last week is PLUG (hydrogen fuel play) and all credit goes to the new Climate bill or Inflation Reduction Act. The Bill proposes significant tax incentives for clean energy. The stock gapped up above $20 and it was a tempting buy near $21 but could not buy the stock ahead of earnings next week. The company delivered bad numbers last quarter, so avoided the stock. Earnings are expected on August 09.
SHOPIFY SHOP Price Action tells you about the market we are in
Shopify came out with bad earnings numbers and the stock tanked only to take support and then delivered one of the most stunning comebacks. The stock has rallied 35%+ over the last 9 days. Buying near support has become a rewarding exercise.
YouTube has partnered with Shopify to help influencers make e-commerce sales on YouTube. It seems good market environment and this newsflow helped the stock. There is an important lesson here. Next time, if the stock declines big time on earnings, look for support and bounce. Example: Remember this lesson when looking at PLUG’s earnings and stock reaction.
TEVA – Earnings bounce
The market has changed so dramatically that now you have to chase prices. Teva did a big Gap up on July 27 after it did a $4 billion settlement for its role in the opioid crisis. Teva also delivered better-than-expected earnings. The stock never looked back 🙁
The market has changed quite dramatically over the last two weeks and now you have to chase prices to get the stock. I wanted to buy Teva but just got no opportunity.
Will Pinterest stand on its own?
Digital advertising is slowing down and Facebook Meta saw its first-ever quarterly revenue decline. Earlier Snap stock sold off violently on similar business performance, but Pinterest stunned everyone with strong quarterly performance. Pinterest’s platform(where users go to find creative ideas and act on them with purchases) saw earnings shoot up. Revenues were up and the balance sheet is healthy. The company has more than $2.6 billion in cash and securities on the balance sheet with no debt. Also over the past year, it has generated $645 million in free cash flow. Here’s the best part: the stock Gapped up and has sustained the Gap.
Ideally, the stock is a buy but there is no sectoral story here. Considering we have so many opportunities elsewhere, I will monitor the stock for now.
PayPal is making a comeback with a new investor
PayPal looks like an interesting buy between $92-$95 as it attempts to fill the Gap.
PayPal reported earnings better than expected. The company’s net revenue rose 9% from the prior-year period. PayPal also reported a $341 million loss during the quarter, compared with a $1.2 billion profit a year earlier. But the real momentum in the stock came on the back of disclosure that Elliot management has $2 billion stake in the company. PayPal would also benefit from the new crypto regulation Congress is working on.
Climate Bill + Good Earnings made CEG Buy today near $71
Constellation Energy CEG (which operates nuclear reactors) would benefit from the Inflation Reduction Act (IRA) primarily through proposed production tax credits offered for nuclear energy. That’s why stock Gapped up a few days back and today it popped up again on strong earnings. Today morning I recommended and the stock did not surprise.
Zoom – Attractive Valuations driving up the stock higher
The market now looks for companies that deliver strong earnings growth, not promise or hope, and are available at attractive valuations. Zoom checks all the boxes. Even though the stock has not broken out above $124 but $103 was a great price to enter and if the market strength sustains, Zoom will break out sooner than later.
Watch List: The stocks that did a huge Gap up on earnings and now on the watchlist to buy on declines
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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