The U.S. stock markets have been reeling from waves of headlines, but this is nothing new. The economic war between the U.S. and China has been going on for almost two years. It’s safe to say that investors are gun-shy about committing new capital.
But this lack of confidence is not obvious from the scoreboards on Wall Street, as the S&P 500 just set a new all-time high. Inside this madness there are many mega-cap stocks to buy and ones that are worthy of bullish bets.
Today I will concentrate on three that many investors favor. Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT) are long-term winners through thick and thin. They have survived through several crises including the dot-com bubble. Current economic skirmishes are not likely to throw these mega companies off their tracks.
It is important to note that short term, there will be complications from headlines. Thanks to electronic social platforms the news disseminates at the speed of light. Machines are now doing most of the trading, cutting reaction times down to milliseconds. This leaves most retail investors at a disadvantage. But for the long term, this effect is neutralized because homework matters more than headlines.
And all three companies today have great fundamental bases for more upside for years to come.
Mega-Cap Stocks: Amazon (AMZN)
Amazon needs no introduction. For over a decade, the e-commerce giant has been the mother of all momentum mega-cap stocks. Those who bet against it have lost. This ultimate growth company never stopped being a startup.
This last comment often draws heated reactions, but Amazon’s startup identity helps it continually add new revenues streams. Evidence to this is its incredible success with Amazon Web Services. Out of nowhere, it began to dominate a segment which we now call the cloud. All other major tech companies are playing catch-up. And by the time they actually do, Amazon will have found a new way to fund its future growth.
Another contentious subject with Amazon stock is its value. I contend that it’s cheap in spite of its 78 trailing price-to-earnings ratio. That too raises eyebrows. This is a stock that sells at 3.3 times its sales. This is a little cheaper than Apple (NASDAQ:AAPL) and twice as cheap as Facebook. So the notion that it is bloated is completely false. When I evaluate a growth company I give it leeway on profitability. Moreover, Amazon is capable of turning on the profitability spigot on a dime.
The bottom line for AMZN stock is that it will be higher in the long term as long as the stock markets are rising. This is a stock to own for the next generation and in spite of the short-term headline noise.
For those who are trading it short term, Amazon is out of favor these days because of its current spending mode. So if the bears can break below the last support near $1,690 per share then they could target $1,600 and perhaps $1,450. Otherwise, the bulls should break through resistance at $1,850 to trigger a sustainable rally to finally set new highs during this bullish stint.
Under prior leadership, Microsoft stock was dead in the water, unable to break through the 50% Fibonacci retracement of the dot-com bust. It even earned a meme that money goes to die there. But under the leadership of CEO Satya Nadella this mega-cap stock came to life. Since he took over in 2014, MSFT stock rallied 300% and is setting records this year. There is no doubt that Microsoft earned Wall Street’s respect back, and that’s why it’s now a mega-cap stock to own.
Among its other successes, management succeeded in turning the ship into the right current. It now features a subscription model. Long gone are the days of major upgrade cycles with vaporware and bug recalls. The cost of doing business with Microsoft from the consumer end is now an affordable monthly expense rather than a major one-time purchase. So the need for piracy has all but disappeared. Like Amazon, if the stock markets are higher in the future, then so is Microsoft.
Short term it is important to know that dips into $142 are entry opportunities. This was the most recent breakout neckline and it’s normal that traders want to test it for footing. This is how the rally can continue to even higher highs. Shorter term, $146 is another mini pivot point that could lend support.
If the stock market corrects into Christmas, then MSFT stock could fall to $137. But that would make for a superb opportunity to buy.
For the longest time, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) had no competition in online advertising. But this is changing fast because Facebook is tight on its heels. It has become a beast in the segment and is eating away at Google’s lead. Its advertising clients stuck with it through trials and tribulations. It is a misconception to say that FB’s users are its clients, because it is the advertisers who pay the bills. As long as using the Facebook platform is free to the public, management will monetize usage data.
Facebook now owns several platforms and each has over a billion users. They are actively engaged on a daily basis — and for hours at a time. This is potential that is hard to mess up. In spite of regulatory challenges, Facebook continues to prosper. For the most part, investors rally on earnings, so Facebook’s management team is one they love to hate.
While it seems expensive from the typical metrics, it is hard to properly judge Facebook because it is one of a kind. As long as it continues to deliver results for advertising clients, it’s going to have incredible retention.
The Cambridge Analytica incident caused a panic among investors that income would suffer. But the platform’s clients never left and neither did its users. Only a small fraction of Facebook users are domestic to the U.S. The majority of users are overseas, and they don’t care as much about the privacy issue as the media does in the U.S. This means the long-term FB business model is attractive. This is a stock to pass on to the next generations.
From a short-term perspective, Facebook stock has been struggling with resistance near $200 per share. If the stock markets rally into 2020 then Facebook has a legitimate shot at finally breaking through and rallying 15%. It is important to maintain the ascending trend that started last December, because higher lows attacking a neckline make for a powerful breakout opportunity. If this doesn’t happen, the Facebook bulls will have to reset and try again.