Just as in December 2018 and March 2020, worries about the American economy, the stock market, and tech stocks are way overdone. As a result, for longer-term investors, there are many good, large-cap growth stocks to buy on the dip.
Appearing on Monday, July 25 on Bloomberg TV, Ed Yardeni, a long-time, and very well-respected investor with a very good track record, said that the S&P 500 has probably bottomed, while “consumers and businesses” remain in good shape.
He added (correctly) that “so far the earnings season is going reasonably well.” Perhaps partly because of the latter two points, Yardeni believes that, regardless of whether the economy technically contracted last quarter, we are in “a mid-cycle slowdown,” rather than a recession.
The bears have made much of a few bad earnings reports. But I think that AT&T (NYSE:T) and Wal-Mart’s (NYSE:WMT) issues were caused by the struggles of low-end consumers, and those problems are not going to hurt most large growth stocks significantly.
Meanwhile, as I’ve written in the past, I think that Snap (NYSE:SNAP) is unique because many marketers use it primarily for brand awareness purposes.
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“We believe the odds of Apple… gradually opening up its NFC (near-field communication) to [PayPal’s] Venmo are potentially on the rise,” the firm wrote. Meanwhile, “Mizuho’s proprietary survey showed that Venmo and Apple Pay users have a strong appetite to use tap-to-pay if Apple opened up its NFC to Venmo.
Analysts, on average, expect PayPal’s earnings per share to surge 23% next year to $4.74. As a result, PYPL stock is now trading a ta very reasonable forward price-earnings multiple of only 16.
So far, during the current earnings season, there have been numerous indications that Amazon’s (NASDAQ:AMZN) corporate spending remains very strong.
The relatively (versus expectations) positive earnings reports posted by IBM (NYSE:IBM), General Electric (NYSE:GE), and cybersecurity company F5 (NASDAQ:FFIV) are all indicative of that trend. Therefore, I expect Amazon’s cloud unit to continue to grow rapidly for the foreseeable future.
The e-commerce business is definitely being hurt by the goods-to-services/experiences switch. But, as I’ve pointed out previously, the phenomenon won’t last forever, and buying AMZN stock on weakness ahead of a likely return to normalcy makes a lot of sense.
Moreover, I remain upbeat on the conglomerate’s strategy of making Amazon Prime more attractive by streaming NFL games, providing free GrubHub memberships, and speeding up shipping times.
And I continue to believe that, under CEO Andy Jassy’s leadership, the company’s forays into new sectors will be much more impactful than they were during the last decade of Jeff Bezos’ tenure.
Alphabet (GOOG, GOOGL)
But, as I indicated in my introduction, there’s a big difference between Snap and some of its larger peers. Specifically, Snap is a “nice-to-be-on” ad platform for marketers who want to connect with and promote their brands among young people. But the larger platforms are “must haves” that many consumer discretionary firms use to directly sell their products.
No other advertising platform is more than a “must have” than Alphabet. That’s because Google has a monopoly on online search ads and interfaces with so many consumers who are ready to pull the trigger on purchases.
Additionally, the long-term holders of GOOG stock should benefit a great deal from the company’s Waymo unit, which continues to make progress in the autonomous driving sector. In fact, in June, Waymo made a deal to deliver Wayfair’s (NYSE:W) products in the framework of a “pilot” program.
Like Alphabet, Roku (NASDAQ:ROKU) stock has tumbled in sympathy with Snap’s poor Q2 results. But Roku has something in common with Alphabet, and it’s an attribute that Snap does not possess. I mean that both Roku and Alphabet are the giants of their sectors, while Snap is far from being the leader in the social media space.
Roku’s status as the clear leader of the rapidly growing connected TV-and-streaming space makes it a “must have” for many advertisers. Indeed, in June, streaming accounted for a record 33% of overall TV viewing. That proportion is poised to keep growing going forward, as more and more viewers “cut the cord.”
And as I noted in a previous column, Roku’s alliance with Walmart, announced in June, indicates that a sizeable proportion of America’s largest retailers are poised to make major deals with Roku. Such deals will, of course, greatly lift Roku’s financial results and ROKU stock over the long term.
Roku’s trailing price-sales ratio is just 4.3. That’s a very low valuation, given Roku’s rapid growth and its status as the leader of the connected Tv market.
General Electric (GE)
Most people probably don’t view this conglomerate as a growth stock. But Aviation, historically the company’s most profitable business, is indeed, as I’ve predicted for some time, beginning to grow rapidly.
In fact, last quarter, its orders surged 26% year-over-year, while its profit mushroomed to $1.15 billion from $176 million a year earlier. And despite the impact of inflation, the unit’s margin jumped to 18.7% from 3.6%.
Even the company’s beleaguered Power business, which had been virtually left for dead a few years ago, generated YOY profit growth of 7%, with its bottom line coming in at $320 million. Additionally, the unit’s sales, excluding the impact of acquisitions, climbed 4% YOY.
GE expects its EPS to come in at the low end of its previous $2.80-$3.50 outlook, excluding certain items. But in 2021, its EPS came in at just $2.12. Also notable is that analysts, on average, expect the company to report EPS of $4.65 for 2023.
American Express (AXP)
American Express (NYSE:AXP) on July 22 reported much stronger-than-expected second-quarter results and increased its full-year guidance. The credit card network explained that it was getting a major lift from strong travel spending.
Showing that high-end consumers still have a great deal of strength left, American Express’ card member spending surged 30% YOY in Q2, excluding the impact of currency fluctuations.
“Goods and Services spending, which is the largest category of spending on our network, continued its strong growth in the quarter, and spending by Millennial and Gen Z Card Members increased 48% on an FX-adjusted basis over last year,” said CEO Stephen Squeri.
The card network raised its full-year revenue growth guidance to 23%-25% from 18%-20%. It maintained its 2022 EPS guidance of $9.25-$965.
Bank of America (BAC)
Like credit card networks, banks are benefiting from the continued strength of high-end consumers, and they are also getting a lift from higher interest rates.
Bank of America’s (NYSE:BAC) revenue climbed 6% YOY last quarter, and its net interest income soared 22% YOY. Additionally, its “Average loan and lease balances” jumped 12% YOY to $1 trillion, while its average deposits climbed 7% YOY to $2 trillion.
“Our strong organic growth engine once again was evident in new account openings for checking, consumer investments, and small businesses, as well as net new Merrill and Private Bank households and new commercial banking customers,” said Bank of America CEO Brian Moynihan. “This solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” the CEO added.
Despite the bank’s strong performance and outlook, its forward P/E ratio is just 10.5.
On the date of publication, Larry Ramer was long GE stock.