Investors are eager to find better investments after January’s disastrous stock performance. Tech stocks performed poorly because markets are bracing for an onslaught of interest rate hikes. Now that cheap money is falling, companies cannot rely on hype and momentum. They must have fundamental strength in the month ahead to attract investors. For February, many technology firms posted strong quarterly results. This suggests their stock will have a V-shaped bounce. Naturally, those picks earn a spot on the list of top stocks.
Investors might catch a break if fears and aversion to risk intensify. Companies that have plenty of profit growth ahead may dip. Before that happens, readers should add these top stocks to the watch list. Once it dips, consider starting a small position. Increase the weighting whenever the stock gets cheap.
The seven top stocks investors should consider are:
- Amazon (NASDAQ:AMZN)
- Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG)
- Snap (NYSE:SNAP)
- T-Mobile (NASDAQ:TMUS)
- Tesla (NASDAQ:TSLA)
- Unity Software (NYSE:U)
- United Parcel Service (NYSE:UPS)
In the table below, Stock Rover scores each stock’s quality, value, and growth.
Quality, value and growth scores.
Five of the seven stocks have strong growth scores. Snap’s growth score will rise as its profitability expands. The value scores are fair, with Unity priced the highest. Alphabet scores the best with a 99/100 on quality. The search engine giant consistently posts strong profit margins.
7 Top Stocks: Amazon (AMZN)
Amazon slumped, and then rose by 13.5% after posting fourth-quarter results. The e-commerce firm earned $27.75 a share, compared to $14.09 a share in fourth quarter 2020. Amazon should not have posted the year over year (Y/Y) comparison because it included $11.8 billion in non-operating income. It booked Rivian’s (NASDAQ:RIVN) valuation gain at the end of the quarter.
After RIVN stock slumped to new lows this year, will Amazon need to post a non-operating income? If it does, will it switch to a non-generally accepted accounting principles (GAAP) measure to overlook the paper loss?
This abnormality aside, Amazon’s net sales increased by 9% to $137.4 billion. Net income rose to $14.3 billion with Rivian’s $11.8 billion gains included. Last year, Amazon earned $7.2 billion. Although the $2.5 billion net income is sharply lower from last year, the firm faced labor and supply shortages. Inflationary pressures also persisted throughout last year.
Amazon’s Web Services (AWS) business is a bright spot. The cloud service grew by 40% Y/Y. It now has a $71 billion revenue run rate.
Investors will flock to this stock. Expect AMZN stock to continue a V-shaped recovery for February.
Alphabet (GOOGL, GOOG)
Alphabet posted Q4 revenue of $75.33 billion. It earned an impressive $30.69 a share. To appeal to smaller retailers, it will split shares 20-for-1. This will increase share liquidity.
Alphabet is a growth compounder in the technology sector. Despite macroeconomic headwinds like higher interest rates and inflation, its digital ad platform continues to grow. Advertisers typically cut spending when the economy slows down. Since Google has such a dominant position in the ad serving industry, advertising firms must continue to buy ad space.
Additionally, Google Cloud is a growth driver. It accounted for much of Alphabets backlog, which increased by more than 70% to $51 billion. Customers join Google Cloud because Alphabet supplies the expertise for matching enterprise needs with consumer interests. For example, Google helped Shopify (NYSE:SHOP) support 47 million customers. Shopify posted $6.3 billion in global sales from Black Friday through Cyber Monday. And customers enjoyed safe transactions served via Google Cloud.
Investors unwilling to overpay for electric vehicle and autonomous driving stocks may hold GOOG stock for its Other Bets unit. Waymo One tested supplying autonomous commercial ride-hailing service in Arizona for one full year.
7 Top Stocks: Snap (SNAP)
Snap posted strong daily active user growth of 20% Y/Y to 319 million in the fourth quarter. Revenue grew by 42%, leading to the: “First full year of positive operating cash flow and Free Cash Flow.”
The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved significantly. It rose by 97% Y/Y to $327 million.
SNAP stock is a V-shaped rebound stock because the company has spent the last few quarters preparing for Apple’s (NASDAQ:AAPL) App Tracking Transparency (ATT) changes to the Identifier for Advertiser (IDFA) framework. Snapchat has a variety of triangulation tactics for its advertising partners. For example, it has a “data clean room” tool for conversions and AV studies.
The company will need some time to earn advertiser confidence for its new tools. This will result in steady profit growth in the quarter and the year ahead.
While mega-firms flaunt the prospects of the metaverse, Snapchat has augmented reality products. For example, it has over 200 million people engaging with AR daily. They are playing with Lenses on Snapchat over six billion times. Snap will monetize people using its camera. It will help businesses access that technology. Customers may try their products using the camera in the Snapchat app.
T-Mobile (TMUS)
After bottoming at around $100 before its quarterly report, T-Mobile may continue bouncing higher from here. In the last quarter, the mobile carrier added 315,000 postpaid net accounts. Revenue rose by 2.2% Y/Y to $20.79 billion. Operating activities provided $3 billion in net cash.
Fast 5G wireless services will drive T-Mobile’s growth. Customers will upgrade their plans to get the improved service. For 2022, expect a few hundred thousand phone customers to get off the CDMA network. This will raise T-Mobile’s average revenue per user.
In 2021, ultra-capacity 5G reached 210 million, above its $200 million targets.
T-Mobile’s operational efficiency will rise. Its Magenta business is growing. Furthermore, its Sprint merger resulted in $3.8 billion in full-year 2021 synergies. This is a triple Y/Y, exceeding its guidance. The company’s strong performance suggests that TMUS stock will not dip. The V-shaped rebound is in play. It will continue in February.
Wall Street analysts have a $158.58 price target, according to Tipranks.
7 Top Stocks: Tesla (TSLA)
Tesla’s “double top” on the stock chart at close to $1,250 is a bearish medium-term sign. Fortunately, the company’s strong quarterly results would justify adding Tesla as a top stock for February.
In the fourth quarter, Tesla posted revenue growth of 65% Y/Y to $17.72 billion. The electric vehicle giant reported steady capital spending of $1.81 billion, compared to $1.82 billion in the third quarter. Tesla posted non-GAAP earnings per share of $2.54. With EPS annualized to $10, the forward price-to-earnings (P/E) at around 90 times is relatively low.
The company warned that supply issues would slow growth. Still, Tesla has two new factories. When the supply shortage ends, it will widen its lead. Emerging EV firms will fall further behind. They do not have the same branding strength that Tesla enjoys. Competitors will need a cheap EV to build market share and increase customer awareness.
Tesla could offer a cheap $25,000 EV but it does not need to. Chief Executive Officer Elon Musk said the company has enough on its plate. For example, it is prioritizing autonomous driving over inexpensive EV sales. It also delayed the Cybertruck. This is strategically a good move. Tesla needs more Model 3 and the more premium Model S cars on the road.
Unity Software (U)
Video game software design firm and metaverse play Unity Software posted revenue growing by 43% Y/Y to $315.86 million. It lost $12 million from operations (non-GAAP).
For the first quarter, Unity expects revenue of up to $320 million. It sees non-GAAP loss from operations in the range of negative $22 million to negative $23 million. For 2022, revenue will grow by 34% – 36%. The company expects that it will lose no more than $41 million from operations.
After the Nasdaq corrected, investors have been punishing firms that do not post profits. Unity is a potential exception. It could reach non-GAAP profitability by next year.
Last year, Unity improved its financial flexibility by raising $1.725 billion in convertible notes. This has a zero percent coupon and a conversion of $308.72 a share. Unity could not have timed the cash raise any better. It has plenty of time to invest in its gaming engine. If it wants to speed up technology developments, Unity may buy out a smaller gaming firm.
Simplywall.st has a $113.97 fair value on U stock. Analysts are more bullish than that. The average price target is $157.71 (per Tipranks).
7 Top Stocks: United Parcel Service (UPS)
Parcel delivery firm UPS announced it would raise its dividend. It also posted strong quarterly results.
In Q4, UPS posted revenue growing by 11.5% Y/Y to $27.8 billion. Profits soared by 91% Y/Y to $3.9 billion. CEO Carol Tomé called out staff on the strong performance. The CEO said, “I want to thank all UPSers for their outstanding efforts throughout the holiday season and for once again delivering industry-leading service to our customers.”
Shareholders will enjoy the dividend hike of 49% Y/Y to $1.52 quarterly.
Investors should expect domestic profits per package to rise. Small and medium business volumes are growing. Profit growth may weaken due to higher fuel costs and surcharges. Still, demand surcharges rose last year. This limits the increase for 2022.
CEO Tomé expects the small package market volumes will grow by about 5% this year. It will add capacity, leading to a revenue expansion. Expect volume peaks in February, followed by steady growth after, based on seasonal delivery patterns.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
