Evidenced by Friday’s record close for the Dow, which for the first time cleared the 35,000 threshold, investors are seemingly feeling more confident that the upcoming earnings results from the most-influential companies in the S&P 500 will be supportive of higher valuations. The results received so far not only have been encouraging, there are reason to expect a sustained recovery through the second and third quarters as well.
Notably, the strong close for the Dow, along with both the S&P 500 and Nasdaq Composite, which also set new highs arrive despite the recent rise in the delta variant of the coronavirus. We continue to talk about the see-saw battle between corporate earnings and the guidance that will be provided versus the potential impact of an increase spread and possible delay in a global re-opening. That argument will be brushed off for at least another week.
The Dow was driven by increases in Apple (AAPL), Bank of America (BAC) and Microsoft (MSFT) which offset declines in Intel (INTC), which lost 5.29% during the session. The S&P 500 index closed 44.31 points higher to 4,411.79, while the tech-heavy Nasdaq Composite Index added 152.39 points to close at 14,836.99. Aside from the aforementioned Apple and Microsoft, Nasdaq’s rally was driven by gains in, among others, Facebook (FB), Alphabet (GOOG, GOOGL) and Amazon (AMZN).
For the week, the Nasdaq was the biggest winner, rising about 3% while the S&P 500 climbed 2%. This was a stunning turnaround after Monday’s rout during which the Dow declined more than 2%. From Tuesday through Friday it was clear that “buying the dip” was the working strategy for investors who have the patience to ride the cycle. The main question heading into the week is whether this rally can continue, particularly as Big Tech comes into focus not only with four of the FAANG stocks slated to announce their results, but also Microsoft.
Investors will have to reconcile the quarterly figures, along with the potential impact the delta variant. Conversely, there continues to be encouraging news from last week’s 0.6% increase in June retail sales which beat a forecast for a 0.4% decline. The upbeat number has begun to show in the guidance that corporations are issuing for the quarters ahead. Understandably, stocks are responding favorably. I suspect this will continue to be the case. Here are the stocks to keep an eye on this week.
Tesla (TSLA) – Reports after the close, Monday, Jul. 26
Wall Street expects Tesla to earn 96 cents per share on revenue of $11.21 billion. This compares to the year-ago quarter when earnings came to 44 cents per share on revenue of $6.04 billion.
What to watch: Tesla shares have fallen as much as 40% since reaching a 52-week high of $900 to a low of $539 on March 5. However, since that low, the stock has risen as much as 46%. That rate of volatility is par for the course for Tesla. Investors want to know how much higher or lower the can stock go. While the stock added 4% over the past thirty days, it still has tons of ground to make up, given that it is down 8% year to date, compared to the 16% rise in the S&P 500 index. And when comparing TSLA stock performance to Ford (F) and General Motors (GM) which have gained 58% and 33% year to date, respectively, the decline in TSLA stock is even more notable. Tesla delivered 201,250 vehicles in Q2, which rose from the 90,650 deliveries in year ago quarter and the 184,800 vehicles delivered in the first quarter. Investors are eager to learn how much profits this growth has produced. Updates on Semi and the Cybertruck timelines, as well as building progress for Texas plant and the one being built in Germany, will also determine whether Tesla stock drives higher or continue in reverse.
Advanced Micro Devices (AMD) – Reports after the close, Tuesday, Jul. 27
Wall Street expects AMD to earn 54 cents per share on revenue of $3.62 billion. This compares to the year-ago quarter when earning were 18 cents per share on $1.93 billion in revenue.
What to watch: Despite a consistent track record for earnings beats, surpassing both revenue and profit estimates in eleven out of the last fifteen earnings reports, AMD stock has not benefited from the strong top- and bottom-line numbers the company has delivered. It seems both the investor and analysts community have taken for granted the growth story AMD has become. But could this time be different? AMD was listed among the top-3 picks for secular cloud-driven growth among semiconductor companies by Vivek Arya, analyst at Bank of America, who cited the company’s ability to “outperform in an environment of decelerating growth for large markets including PCs, automobiles and smartphones.” AMD’s gross margin has also been a key contributor to its success and rising cash flow. Assuming AMD’s gross margin continues its uptrend, the stock looks significantly undervalued relative to its growth opportunity. And given the company’s streak of earnings beats and is well-positioned to do so again, it would be a mistake to part with AMD stock.
Wall Street expects Alphabet to earn $19.21 per share on revenue of $56.02 billion. This compares to the year-ago quarter when earnings came to $10.13 per share on revenue of $38.3 billion.
What to watch: Shares of Google parent Alphabet, up 36% in six months and 47% year to date, compared with 16% rise in the S&P 500 index, have outperformed their FAANG peers over the past six months. The gains have been driven by the tech giant’s cyclical recovery in its advertising business. This was noticeable last quarter when the company delivered an impressive 34% jump in Q1 revenue. The market has seemingly re-priced the stock based on the company’s growth resurgence. But while the the increase multiple seems justified, the stock is no longer cheap. That said, Google’s recent uptrend in several verticals in online advertising, particularly in areas such as retail, financial services and travel remain compelling reasons to bet on higher prices. And that’s not to mention the gains the company has made in its Cloud business. On Tuesday the market will want to see sustained improvement in these areas to assess whether the stock can maintain its uptrend or if it’s time to take profits.
Apple (AAPL) – Reports after the close, Tuesday, Jul. 27
Wall Street expects Apple to earn $1.00 per share on revenue of $72.93 billion. This compares to the year-ago quarter when earnings came to 64 cents per share on revenue of $59.69 billion.
What to watch: Apple stock has gone on an impressive run, rising about 10% over the past few weeks. And there are more gains to come, according to analyst David Vogt of UBS. Citing increased demand for iPhone unit sales, Vogt raised his twelve-month price target from $155 to $166. The analyst believes curer-quarter estimates are too conservative, boosting his forecast for revenue and EPS from $71.3 billion and 95 cents to $74.7 billion and $1.01, which is about 1% above Street consensus. Unswayed by the prolonged chip shortage, Vogt also boosted Apple’s fiscal 2021 iPhone unit estimate from 225 million to 227 million, while raising his FY22 forecast from 220 million to 225 million. In other words, Apple’s hardware business has already bottomed. But Apple is more than just a hardware company. The company’s Services business, which now accounts for some 25% of total revenue, surged some 27%, helping Apple to smash Q2 revenue by more than $12 billion. Can the strong trend continue? Investors are hoping so on Tuesday.
Microsoft (MSFT) – Reports after the close, Tuesday, Jul. 27
Wall Street expects Microsoft to earn $1.90 per share on revenue of $44.1 billion. This compares to the year-ago quarter when earning were $1.46 per share on $38.03 billion in revenue.
What to watch: Sustained work and learn-from-home trends, which have driven increased demand for Microsoft services, particularly in the Intelligent Cloud segments, are expected to remain high. The strong outlook has generated tons of bullish momentum for the stock which has rallied almost 27% over the past six months. The company’s strong execution track record is another reason for the increased confidence. Microsoft has surpassed profit expectations dating back twelve quarters, while missing revenue estimates only once. As such, Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, particularly given the strong growth rate within its Azure cloud platform which in 2021 is expected to surpass Amazon’s AWS. This raises the question whether all of this good news is priced in? To keep the rally going, Microsoft on Tuesday must deliver not only robust business segment results, but also better-than-expected guidance.
Facebook (FB) – Reports after the close, Wednesday, Jul. 28
Wall Street expects Facebook to earn $3.02 per share on revenue of $27.82 billion. This compares to the year-ago quarter when earnings came to $1.80 per share on revenue of $17.4 billion.
What to watch: Facebook shares have gone on an impressive run over the past several weeks, rising more than 47% from $255 on March 8 to a recent 52-week high of $375. The social media giant is benefiting from a combination of factors. Aside from an improved ad-spending environment, there’s also an accelerated shift to digital by corporations who are looking to leverage the services that Facebook offers. In terms of product engagement with products such as Messenger, Instagram and WhatsApp, Facebook continues to enjoy significant increases in usage, driven by coronavirus-induced lockdowns. These include recent initiatives to enable e-commerce services to users. On Wednesday the market will want to know how much have these services contributed to the bottom line? While the Facebook stock is not as cheap today as it were two months ago, the company’s leadership position will support the stock which is expected to outperform throughout 2021.
Amazon (AMZN) – Reports after the close, Thursday, Jul. 29
Wall Street expects Amazon to earn $12.22 per share on revenue of $115.07 billion. This compares to the year-ago quarter when earnings came to $10.30 per share on revenue of $88.91 billion.
What to watch: I’ve asked for some time whether Amazon was was given enough respect? While not one is questioning its dominance, the stock had been somewhat dormant and range-bound despite the fact the retail giant was growing faster than its FAANG peers. But it would seem the market is starting to evaluate the stock based on faster growth metrics. Amazon stock has soared about 30% since March 8, rising from about $2950 to an all-time high of $3773 earlier this month. The reason for the surge? Not only does Amazon continue to benefit from strong demand acceleration caused by the pandemic, the company has executed an effective strategy to grow its Prime members, while getting Prime members to spend more during each transaction. And there are plenty of evidence to suggests that Amazon’s market share gains are here to stay beyond the pandemic. With the stock trading at less-than four times forward revenue it would be a mistake to part with this long-term winner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.