2018 ended with a bang between the good and bad sentiment trading on Wall Street. The final battle occurred around Christmas and finally investors were able to shake the malaise that had dominated trading for most of the year.
All year long, the stock rally died a slow death by a thousand cuts. The stream of negative headlines was too much to overcome and investors were selling rallies. There were two dominant fears: The tariff war between the U.S. and China, and the fear of the Federal Reserve. But in December, U.S. Fed chairman Jerome Powell finally confirmed that they will not invert the yield curve on purpose. That alleviated half the fears on Wall Street.
So the sell the rip mentality died and the buyers are back in control. This is not to say that is all green pastures from here. After all, we still have the tariff deal to work out. On that front, both sides are singing softer tunes. They sound intent on resolving the matter by the March deadline.
For now and going into the earnings season, stocks can trade mostly on merit. Today I share three blue-chip stocks that are likely to do well in 2019. My mid-term thesis is still bullish on these S&P 500 index stocks. There is too much good news now to let headline fears cripple stocks. In the long run, fundamentals will prevail over fear.
Amazon (AMZN)
For decades Amazon (NASDAQ:AMZN) stock has been the mother of all momentum stocks. This is a company that emerged out of nothing and crippled several industries. This is most evident with what it did to the brick-and-mortar retail industry. These stocks there are still reeling and have not yet figured out how to solve that riddle.
The bullish thesis on Amazon stock is very simple: If the stock market is higher, then Amazon is leading the charge. AMZN has created and now dominates the cloud. This is a great cash cow that will feed any new growth to come. And it is constantly seeking new income streams so it will indeed have more home runs to follow.
My bet is that voice control technology will play a big role in AMZN’s next chapter. Alexa licensing income will probably be a huge contributor to the company’s bottom line. Furthermore, they have over a hundred million subscribers each paying $119 per year for prime. This is also a giant contribution to their bottom line much like similar memberships benefit Costco (NASDAQ:COST).
What all of this means is that AMZN is a blue-chip stock to own for the long-term. Even Warren Buffet may buy some shares eventually. The tricky part is that momentum stocks like Amazon rarely give a clear points of entry, so choosing the perfect time to buy this king among S&P 500 stocks means that you will never own it. Amazon’s earnings are just around the corner and those can temporarily be binary. So I would prefer to own half a position going in and add to it thereafter.
Facebook (FB)
There have been few blue-chip stocks that fell more out of favor than Facebook (NASDAQ:FB) last year. Management had to justify its very existence in congressional hearings, after FB took the blame for a giant data breach in 2018. Facebook’s management failed to mend the wound. The mistake management made was hiding the event when it happened and then not severely and publicly punishing those who actually did the wrongs.
While the headline from that particular Cambridge Analytica incident is gone, the stigma lingers. So now all eyes are on FB, so it cannot afford to make another major mistake. Operationally Facebook is a marketing behemoth. Its reach stretches far beyond its own FB platform and advertisers are not likely to leave the company.
In addition, FB also has several platforms that it has yet to monetize. I personally use WhatsApp and will probably pay for it it or would tolerate the ads if and when they come. Facebook has over a billion users engaged on its platforms every day for hours at a time. This is massive potential that is almost impossible to ruin. So this is merely an adjustment period. That is necessary and the company will come out of it better in the long run. The key perspective with FB stock is that it’s a long-term investment and not just a trading vehicle.
The stock has violently bounced off recent lows and it has been setting higher ones since the Christmas bottom. So going into the earnings FB stock has momentum on its side and the buyers are in control. I do worry about the expenses that management is incurring in order to appease public opinion. Management wants to make sure legislators see them fit to lead, so they don’t come down hard on the industry with extreme litigious cuffs.
This is one of the greatest names among other S&P 500 stocks and no one truely wants to cripple it. As such, we need to adjust our privacy expectations. There is no way to stop data breaches from happening, but companies have to put their best efforts forward on that front. I am realistic with my expectations on privacy, so I am aware that they already know too much about me, even though I never used the platform. But so does Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and every other company I do business with electronically. Facebook is not evil, it just happens to be the most successful of all social media platforms. Once investors get over these moral difficulties, FB stock should get back on track.
Nvidia (NVDA)
Our lives are completely dependent on technology now more than ever and this is a trend that is not going to reverse anytime soon. We have a few suppliers to power that tech. Semiconductor companies, especially chip providers, are at the heart of this trend. Unfortunately they are momentum stocks and that makes them hard to trade, so it is best to invest into a longer term thesis.
On the way down, they seem like they’re falling into an abyss and on the way up they seem perpetually ready to correct. And that’s what happened to Nvidia (NASDAQ:NVDA) stock. This was a company that everybody had to own when it was $290 a share. But when it fell to $120 last year, no one would touch it. The upside of a big NVDA stock fall is that the price-to-earnings ratio comes back to earth. At $156 per share, NVDA’s P/E is now 20 and it is no longer bloated.
NVDA has shed most of its froth, so in the long run Nvidia stock will recover a lot of the premium it had earned before the correction. This is a classic case of a stock loosing too much too soon. The company still has excellent chips in all the right areas, including gaming, artificial intelligence and autonomous driving. Since these trends are not going away anytime soon, neither is NVDA stock.
Much like AMZN, if the markets in general are higher, then this will be one of the blue-chip stocks that will be higher. Add to that the fact that it is much less frothy than than its competitor Advanced Micro Devices (NASDAQ:AMD), and it’s no wonder that this is a solid S&P 500 stock to buy.
Click here for a bonus video on Apple (NASDAQ:AAPL) stock. This is a wild one but there are clues. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
