Are you one of the investors who spends time analyzing the annual Fortune 500 list? Those 500 companies on the list have recently posted a combined $14 trillion in revenue — roughly equivalent to two-thirds of the U.S. gross domestic product (GDP). Additionally, the current list has more than 100 companies that have headquarters in the state of California. Therefore, today I’ll take a closer look at four California stocks to keep on hold until after the novel coronavirus pandemic.
Moreover, California is host to 40 million residents and many of our finest companies. They operate in a broad range of industries from technology, to financial services to healthcare. That said, the importance of cluster districts, such as high-tech clusters on the productivity and competitiveness of top inventors is quite well-know.
In fact, according to research by Enrico Moretti of the University of California, Berkeley “The San Francisco-Silicon Valley region has the largest agglomeration of innovative firms in the US, with important clusters in most research fields.” In addition, there are biotech cluster and medical devices clusters in San Diego.
So as California reopens for business amid worries of a second wave of the coronavirus pandemic, many investors are wondering whether they should hold onto their shares or sell to invest later.
That said, I believe the following four companies deserve your attention as California stocks to keep on hold until post-coronavirus:
Overall, as the earnings season begin, there will likely be volatility in their share prices. However, long-term investors may regard any decline in the price of these California stocks as opportunity to go long the shares. So, without further ado, let’s dive in.
Hot California Stocks: Amgen (AMGN)
Amgen is one the leading biotechnology companies globally. Its history goes back to 1980 when it was established in Thousand Oaks, California. The group focuses on six therapeutic areas: cardiovascular disease, oncology, bone health, neuroscience, nephrology and inflammation.
In late April, the group reported robust first-quarter earnings. Total revenues increased 11% to $6.2 billion in comparison to the first quarter of 2019. In fact, the company cites that this increase was “driven by higher unit demand, offset partially by lower net selling prices.” Moreover, product sales increased 12% globally, driven by volume growth across a number of its newer products, including psoriasis drug Otezla and Repatha (for patients with high cholesterol and cardiovascular disease proven to reduce heart attacks and strokes). Blockbuster anti-inflammatory drug Enbrel also saw strong sales of $1.15 billion during the period.
When the company reports Q2 results in a few weeks, Wall Street would like to see a continuation of the positive trend in Q1. The company is also collaborating with a range of biotechnology companies, academic institutions and government entities in the overall efforts to identify effective treatments for COVID-19.
For example, it is participating in the The National Institutes of Health (NIH) and the Foundation for the NIH’s (FNIH) Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV) partnership. Furthermore, Otezla will be investigated as a potential immunomodulatory treatment in adult patients with COVID-19 in upcoming platform trials. Finally Amgen is collaborating with Adaptive Biotechnologies to discover and develop fully-human neutralizing antibodies to potentially prevent or treat the novel coronavirus.
So, in case there are further positive developments regarding any of these steps, AMGN stock is likely to benefit further. I believe any pullback in price would make Amgen shares a California stock to consider for the rest of the year.
Apple will report Q3 earnings later this month on July 30. Earlier in April, though, the company reported muted Q2 earnings. It posted quarterly revenue of $58.3 billion, an increase of 1% year-over-year, and quarterly earnings per diluted share of $2.55 — up 4%. Moreover, international sales accounted for 62% of the quarter’s revenue.
In turn, Wall Street noted that revenue growth slowed down as the company saw supply and demand impact from coronavirus. Furthermore, unlike previous earnings releases, the group did not issue guidance for the quarter ending in June.
In recent days, Apple has closed retail stores in a number of states where there has been increased cases of coronavirus cases. In that case, if the closures become more widespread both stateside and overseas, AAPL stock may easily be adversely affected.
Broader indices, as well as many stocks like AAPL, remain near all-time highs. In fact, year-to-date, Apple shares are up about 27%. There will likely be increased volatility in Apple shares as the earnings day approaches. However, long-term investors can regard any drop in prices as opportunity to invest in the group as a robust California stock. It has long-term catalysts, including the opportunities yet to be offered by the upcoming 5G iPhone.
Integrated oil major Chevron is one of the world’s largest oil companies. Its most significant areas of operations are the west coast of North America, the U.S. Gulf Coast and Southeast Asia.
In early May, Chevron released Q1 results. It reported earnings of $3.6 billion ($1.93 per diluted share) for first quarter 2020, compared with earnings of $2.6 billion ($1.39 per diluted) in the first quarter 2019.
Although the results were robust, CEO Michael Wirth highlighted that “commodity prices fell significantly in March and the weakness continued into the second quarter, primarily due to reduced demand resulting from the COVID-19 pandemic.”
Despite the considerable gains since March, CVX stock is down more than 26% YTD. However, the group leverages nearly a century and a half of expertise to navigate global energy markets. Thus, it will likely be able to rise to the economic and health challenges brought the pandemic. And therefore, management expects “financial results in future periods … to be depressed as long as current market conditions persist.”
Yet, since the historic lows seen in April, oil prices have been steadily rallying over — which has been a boon for energy stocks like CVX. So in the coming days, I’m expecting some profit-taking in Chevron shares.
On the other hand, however, long-term investors who believe that crude oil demand could continue to head higher in the second half of the year may put this California stock on their radar amy may consider buying the dips.
2020 has so far been a great year for investors in EBAY stock. YTD, EBAY shares are up more than 55%. The company has been one of the beneficiaries of stay-at-home and work-from-home trend.
In late April, the group released Q1 earnings. Revenue of $2.4 billion was down 2% YOY, while GAAP EPS came at 64 cents and the company had 174 million active buyers worldwide. Also during the quarter, the e-commerce group returned $4.1 billion to shareholders through share repurchases and cash dividends.
Prior to the coronavirus days, EBAY stock was for the most part stock below $40. However, now the momentum is with the shares. In early June, eBay revised its Q2 guidance upward, and the stock rallied. That said, I believe EBAY is one another one of the solid California stocks to research further and add to a long-term portfolio.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.