The Nasdaq, S&P 500 and Dow all reappeared Thursday, marking the third consecutive day of gains as stocks try to recover their records almost as quickly as they fell. Monday’s huge drop capped nearly a week of selling after all three indexes hit highs on July 12.
Concerns about the Delta coronavirus variants and fears of an economic slowdown have been blamed for the market plunge. But sometimes people draw broader conclusions and express general concerns when simple profit-taking and healthy recalibrations will do just fine.
Corrections and massive sell-offs are essential for the proper functioning of markets. Given that the broader concerns we alluded to and the rise in prices have not gone away for three days, profit taking appears to be a worthy culprit, especially given the lightning-fast rebound.
The strong advance dating back to mid-March pushed large tech ETFs such as QQQ (QQQ – Free Report) at certain overheated technical levels. And investors shouldn’t be surprised if Wall Street starts selling again during the impressive earnings seasons (also read: All-Around Earnings Strength).
Wall Street’s heavy hitters always take gains off the table, only to plunge back into their favorite stocks at more attractive levels. The average investor may try to take a similar approach. But one thing those with horizons stretching over a year should do is remain exposed to the market at all times, as the timing of the market and individual stocks is extremely difficult.
The recent decline in Treasury yields makes technology and growth stocks more attractive. Moreover, even when the Fed does eventually raise rates, Wall Street will continue to pursue stock returns for a long time given current lows.
With that in mind, we dive into two of Wall Street’s biggest names ahead of their next financial releases to see if Apple and Microsoft might be worth buying even at new heights …
Image source: Zacks Investment Research
Apple (AAPL – Free report) Q3 FY21 results on Tuesday July 27
AAPL is up 20% since mid-May and is trading very near new highs of around $ 150 as its third quarter financial release approaches. The recent run follows a period of prolonged stagnation for the world’s largest company (roughly $ 2.5 trillion in market cap) following its surge after the stock split.
Apple has only risen 10% since September 1, trailing the 25% rise in Zacks’ tech sector and 23% in the S&P 500. Its underperformance seemed due given its massive run for the market. following the Covid crash and it has grown by 180% over the past two years compared to 80% in the tech sector.
The AAPL and the broader tech gains over the past two months may give some investors pause. But those with long-term horizons shouldn’t focus too much on finding the best entry points, except for traders. Apple is also trading 25% below its annual highs at 27.3 times expected earnings, which is below its median over this period. And its recent pullback sent it back below RSI overbought levels.
Image source: Zacks Investment Research
Wall Street remains high on Apple, with 18 of the 26 brokerage recommendations Zacks made for “strong buys”, with four more “buys” and none below a “hold”. Apple also closed the second quarter with $ 83 billion in net cash and plans to continue repurchasing more shares and paying higher dividends in an attempt to “achieve a cash neutral position over time.” and maintain its status even if it faces short-term selling pressures.
Apple boasts a solid history of quarterly profit beats, with 40% in the second quarter. Analysts have continued to increase their EPS estimates, with a few higher revisions in the past seven days. This means Apple might need another big beat. The positivity of the bottom line is helping AAPL earn a Zacks Rank # 2 (Buy) at the moment, alongside its “A†rating for Momentum and “B†for Growth in our style scoring system.
CEO Tim Cook’s mission is to transform Apple far beyond an iPhone business and continually make money from its massive and growing user base. These service efforts go beyond its App Store and include Netflix (NFLX – Free report) and Spotify (PLACE – Free Report), a subscription-based news offering, a video game platform, digital training courses, and more. AAPL ended the second quarter with 660 million paid subscriptions, up 145 million from the previous year and “twice the number of paid subscriptions” it had “just two and a half years ago “.
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Apple has been in the news over the past year and more recently for its privacy efforts which are now having an impact on Facebook (FB – Free Report) and the ability of others to track users. AAPL faces legal battles over its own app store. But Wall Street doesn’t seem worried, especially when demand for its first 5G-enabled iPhone has been strong, while iPad and Mac sales have picked up and their smartwatch and wireless headphones are performing well. .
Apple sells high-end consumer electronics that millions of people are looking for and wanting the latest upgrade. The company is poised to thrive in a world full of smartphone and device junkies. And its branding prowess remains almost unmatched.
Against this backdrop, Zacks estimates that AAPL’s revenue for FY21 is expected to increase by 30%, from $ 275 billion to $ 357 billion. This would come on top of last year’s 6% sales expansion and mark its strongest revenue growth since 2015. Meanwhile, its adjusted profits are expected to grow 58% this year.
Recent reports suggest Apple is ramping up iPhone production, and Zacks estimates ask it to follow the 2021 growth with higher sales and profits next year. Investors should also note that Apple has brought more of its chips in-house and there have even been reports that it is considering entering the EV market.
Microsoft (MSFT – Free report) Q4 FY21 results Tuesday July 27
Microsoft, like its tech titan counterpart, posted spectacular results in the last quarter as it continues to benefit from the growth of cloud computing, its expanding portfolio, and the piles of cash that helps it fund its strategic acquisitions. . MSFT posted 19% sales growth and 40% adjusted EPS expansion in the third quarter of FY21, and analysts quickly raised their outlook for a company that almost always beats earnings estimates.
Zacks’ estimates call for a 16% increase in revenue in 2021 to $ 166 billion, while FY22 sales are expected to grow an additional 11.4%. Those projections would extend its streak of 10 to 15 percent sales growth over five years, a decent advance, to say the least, of a company that went public in the 1980s. Meanwhile, its adjusted profits are expected to rise by 35 % and 7%, respectively, during this period.
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Microsoft’s earnings revisions have stalled recently to help it land a rank 3 of Zacks (Hold) for the time being. The stock also sports “B” ratings for growth and momentum in our style score system. And Wall Street analysts love MSFT, with 18 of the 19 broker referrals Zacks received as “Strong Buyâ€, with the other a “Buyâ€.
Additionally, the company ended the last quarter with approximately $ 125 billion in cash and cash equivalents. The company returned $ 10 billion to shareholders through share buybacks and dividends during the period, and its return of 0.80% exceeds AAPL’s 0.60% return.
The $ 2.1 trillion market-cap company was just behind Zacks’ tech sector in the past year, up 41%. MSFT climbed nearly 30% in 2021, reaching new highs along the way, including another record high on Thursday.
The stock also overtook Amazon (AMZN – Free Report), Facebook and Netflix over the past three years. The recent rip has pushed MSFT above the overbought levels of RSI (70) at 72, which could mean some profit taking is in the cards. Microsoft is also trading at a 5% discount from its year highs of 33.6X expected 12-month earnings.
Investors have flocked to the historic tech company over the past five years because of its ability and foresight to adapt. Its booming cloud business that creates consistent revenue has made the business more vital to its business customers. And Microsoft’s ability to grow its cloud business alongside Amazon and others has transformed its outlook for years to come. The cloud now plays a role across the enterprise, from its Office suite to the Xbox.
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MSFT announced in mid-April its intention to buy Nuance Communications Inc. for $ 16 billion, making it the second-largest transaction under the leadership of CEO Satya Nadella. Nuance is at the forefront of speech recognition and AI, with its technology bundle aimed at integrating MSFT’s growing cloud business for healthcare customers and beyond.
Microsoft is increasingly valuable to its customers, from mainstream consumers to giant corporations, and it’s prepared for the hybrid workplace with offerings that rival Zoom Video (ZM – Free report).
