This year has been tough for everyone and not just Wall Street. People all over the world are suffering either from being sick or dying from the novel coronavirus, or stuck jobless with bills to pay. Somehow some mega tech stocks are still close to their all-time highs.
Right now, investors are either still hanging on to their precious stocks or they are interested in buying dips. The early actions of the U.S. Federal Reserve and trillions of stimulus dollars have propped up sentiment to a degree. The lessons many learned from 2008 have stuck. On Saturday, famed investors Warren Buffet acknowledged as much in his address to Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) shareholders.
The human death toll from the coronavirus is tragic. The global shutdown halted almost all business activities, so many businesses will also die around the world. But there are also clear winners like Amazon (NASDAQ:AMZN), Costco (NASDAQ:COST) and Walmart (NYSE:WMT), which benefited from the shift in spending.
However, most other companies remain dead in the water. Some areas are starting to reopen, but I bet they will stop that trend if the new virus case count rises again.
Clearly, while the world heals, the place to invest is in the large-cap tech stocks like the following:
I am optimistic about the stock charts for each of these tech stocks, but I see the potential for horrendous economic data. As much money as the government is spending on the unemployment stimulus in the U.S., it is going to incentivize too many to stay home longer than necessary. This week is pivotal on that front and if the unemployment reports come way worse than forecast, I bet that stocks will have another severe tizzy. The spending in the U.S. has been healthy because, for the last decade, everyone that wanted a job could have one. Changing that fact will have severe and sustainable consequences on GDP.
Meanwhile, these companies seem somewhat immune to the effects of covid-19. Each of these mega tech stocks have recovered sharply off the bottom in a way that most experts said that they wouldn’t. Let’s take a closer look and see if it was a mistake or it’s still still good to buy them.
Large-Cap Tech Stocks to Buy: Apple (AAPL)
Apple is arguably the best company on the planet. Investors still give it the moniker of the best balance sheet on Wall Street, even though this may not be quite accurate. Nevertheless, it is still in very healthy financial shape and last week’s earnings report was proof of this. Management beat on both the top and bottom lines. They also reported a 17% increase in the all important services division. This is why most experts allow AAPL stock to be expensive relative to itself with a 24 price-to-earnings ratio rather than the 18 it used to have.
Apple offered no guidance, but it did announce a bit of financial engineering, which conveys an optimistic tone. Apple increased its dividends and announced more buybacks. Despite of all this, AAPL stock spiked after hours on the headline to $301, then gave it back, closing down 1.6% the next day. This is not surprising from a technical perspective because $305 per share has been a big problem for AAPL stock for months.
This is not all bad news for the bulls because ideally, after a strong rally, it’s normal for a stock to fade a little after hitting resistance like this. The bulls will have the opportunity to rest and remount the effort to try again. This is how you can verbalize the making of a bullish inverse head-and-shoulder pattern. Even if you don’t believe in technicals, the best stocks in the world cannot rally for ever. Apple came into the earnings report up almost 40% from the covid-19 crash bottom. It can afford a setback or two.
If this dip scared people out, then they should admit that they are traders, not investors.
Tesla (TSLA)
Just when investors thought TSLA stock was safe from CEO Elon Musk’s Twitter shenanigans, he struck again. On Friday, Musk found it necessary to tweet that his company’s stock was too high. Also, in his rant he shared his intention to dispose of his possessions, including his home, and that it’s time to give people back their freedom. I assume he meant that it’s time to unlock businesses. Understandably, TSLA stock fell 12% from high to low on the tweet and closed down 10% for the day.
Luckily for investors, management had just delivered a strong earnings report, so the tweet came at a time where the bulls had a little extra to give back. And therein lies the opportunity. This is a stock that defies gravity because love it or hate it, TSLA stock has survived several shocks in the last few years. Yet here it is, hanging on as a champ and close to its all-time highs because of the its fans. The stakeholders are in love with the car, the company and the stock. And at the base of all of it, they love Elon Musk.
In a personal conversation this weekend with investor friends of mine, I had one tell me “they are going to space” referring to Space X project. The bullish thesis for Tesla even defies company boundaries to some. Perception is skewed, and for now, it works for the stock. The experts’ opinions vary tremendously, so you have to use your own judgement.
The point is that every dip is a buying opportunity, but not to all investors. Fast traders can capitalize on Friday’s dip. TSLA stock has support at $670, $651 and $632 per share. Depending on how the overall market performs this week into the jobs reports will greatly determine at which level Tesla will stabilize. For longer-term investors, there is clearer base near $550 per share. While this is not a forecast, it is the best place for entry this year.
Facebook (FB)
Like Tesla, FB stock has also had its own headline issues. After all, it was the weapon that the Russians used to meddle with the 2016 U.S. election. Not to mention the data privacy issue that came out of the Cambridge Analytica scandal. Neither of these two situations was the malicious wrongdoing of Facebook management, but they were still held accountable for the consequences regardless. The culprits in both were third-party entities. The stock took a beating in both cases and each instance made for great entry opportunities.
FB stock soared before and after the earnings report. It briefly touched $210 per share before it fell 1.2% on Friday, after a tough market day. The fundamentals were strong despite the difficult conditions. Social distancing has forced people into more online interactions than ever. FB owns that space with billions of daily active users who are now stuck at home with nothing better to do. Wall Street recognizes the potential that Facebook has because it has almost completely recovered from the covid-19 crash in a V-like pattern.
Last week, management delivered almost 20% year-over-year growth and expressed the opinion that they see signs of stabilization. This team is confident because they also said that they are not shying away from investing through this crisis. While other industries like oil are directly hit by the shutdown and are cutting expenses, Facebook is powering ahead. Long-term investors should hold also confidence when management is demonstrating this much confidence about its outlook.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
