Stock Pick Update: Dec. 23 – Dec. 29, 2020

In the last five trading days (December 16 – December 22) the broad stock market has extended its short-term consolidation following record-breaking run-up. The S&P 500 index reached new record high of 3,726.70 on Friday, before retracing most of last week’s advances.

The S&P 500 has lost 0.24% between December 16 open and December 22 close. In the same period of time our five long and five short stock picks have lost 0.04%. Stock picks were relatively slightly stronger than the broad stock market last week. Our long stock picks have lost 3.94%, however short stock picks have resulted in a gain of 3.86%. Short stock picks’ performance outpaced the benchmark return on the downside, but the whole portfolio followed broad stock market very closely.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

Our last week’s portfolio result:

Long Picks (December 16 open – December 22 close % change): XOM (-5.74%), COP (-8.91%), WFC (-2.29%), BK (+0.02%), FB (-2.79%)
Short Picks (December 16 open – December 22 close % change): DUK (-3.10%), EVRG (-4.03%), SPG (-5.23%), CBRE (-5.37%), KO (-1.57%)

Average long result: -3.94%, average short result: +3.86%
Total profit (average): -0.24%

Stock Pick Update performance chart since Nov 18, 2020:

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, December 23 – Tuesday, December 29 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (December 23) and sold or bought back on the closing of the next Tuesday’s trading session (December 29).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s .

Based on the above, we decided to choose our stock picks for the next week. We will choose our 5 long and 5 short candidates using trend-following approach:

  • buys: 2 x Technology, 2 x Energy, 1 x Financials
  • sells: 2 x Utilities, 2 x Real Estate, 1 x Consumer Staples

Buy Candidates

CRM Salesforce.com, Inc. – Technology

  • Stock remains above its short-term upward trend line
  • Uptrend continuation play
  • The support level is at $220 and resistance level is at $240-250 (short-term target profit level)

NVDA NVIDIA Corp. – Technology

  • Stock trades above medium-term upward trend line
  • Possible breakout above short-term consolidation
  • The support level is at $490-500 and resistance level is at $550

PSX Phillips 66 – Energy

  • Possible short-term bull flag pattern – uptrend continuation play
  • The support level is at $60 and resistance level is at $70

Summing up , the above trend-following long stock picks are just a part of our whole Stock Pick Update . The Technology and Energy sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today .

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

 

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Nasdaq Hits Yet Another Record Close

The major indices closed mixed on Wednesday (Dec. 16), as the Nasdaq hit yet another record close amidst stimulus optimism and the Fed’s dovish tone.

News Recap

  • Although the Dow Jones closed lower by 44.77 points, or 0.15%, the S&P 500 gained for the second day in a row and rose by 0.18%. The Nasdaq closed once again at a record high and gained 0.5%.
  • Sentiment for the day started negatively after the Commerce Department reported a steeper-than-expected drop in U.S. retail sales. The department stated that retail sales fell by 1.1% in November compared to estimates of 0.3%.
  • Cautious optimism that some sort of stimulus could be passed before the end of the year encouraged investors.
  • According to Politico , Congress was on the brink of a $900 billion stimulus deal that would include a new round of direct payments to consumers. However, that package would exclude the more contentious areas of liability shields for businesses and state and local aid.
  • We have reached the deadliest weeks of the COVID-19 pandemic. More than 300,000 total COVID-19 related deaths have now been confirmed in the U.S., with over 16 million confirmed cases. Additionally, US officials reported 3,400 new COVID-19 deaths – a daily record.
  • After an FDA panel officially endorsed Moderna (MRNA) – following a review which confirmed safety and efficacy earlier in the week – the big day is finally here. On Thursday (Dec. 17), the FDA will officially vote on Moderna’s vaccine. This will strongly complement the mass deployment of Pfizer (PFE) and BioNTech’s (BNTX) vaccine.
  • The Federal Reserve ’s announcement on monetary policy was largely as dovish as expected. The Fed vowed to continue its asset purchase program at the current rate, “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.”
  • Microsoft (MSFT) and Salesforce (CRM) led the Dow with gains of 2.4% and 1.6%, respectively, while Walgreens (WBA) was the laggard and declined 2.15%.
  • Moderna (MRNA), despite its big week ahead, dropped 6.9%.

While there is some short-term uncertainty and mixed sentiment, there is some general consensus: While the short-term may see some pain and/or mixed sentiment, it may be worth it for the medium-term and long-term optimism.

The overwhelming majority of market strategists are bullish on equities for 2021- despite near-term risks. Outside of the pandemic raging to out of control levels, another near-term risk that has been largely overlooked is the Senate runoff election in Georgia. Investors have largely already priced in a divided government – however, if Republicans end up losing both seats in Georgia, this could potentially upend everything.

According to Jimmy Lee, CEO of the Wealth Consulting Group ,

“I think that we can get a little bit of consolidation before year-end just due to normal selling at the year-end for rebalancing or tax loss harvesting. Also, depending on where the pulse is for the Senate race in Georgia, investors might want to get ahead of that if they think that capital gains taxes may go up in the future…So that could cause some additional selling before year-end and we could get a little bit of a pullback. But I am very bullish on equities at this point. And I do think we may get a little bit more of a rotation into the economy-opening sectors.”

Meanwhile, progress on the stimulus package appears to be more optimistic than many expected in the near-term.

“The odds of a fiscal deal before year’s end have been improving,” Goldman Sachs economists led by Jan Hatzius wrote in a note Tuesday (Dec. 15). “While we had expected a smaller package to pass now with a larger package waiting until early 2021, it appears increasingly likely that most of this could pass this week.”

While markets for the rest of 2020 (and perhaps early 2021), will wrestle with the negative reality on the ground and optimism for an economic rebound, the general consensus appears to be looking past the short-term painful realities, and focusing more on the longer-term – a world where COVID-19 is expected to be a thing of the past and we are back to normal.

In the short-term, there will be some optimistic and pessimistic days. On other days, such as Wednesday (Dec. 16) (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect uncertainty. Therefore, it is truly hard to say with conviction what will happen with markets in the next 1-3 months. However, if a stimulus deal passes within the next week, it could mean very good things for short-term market gains.

In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed to the general public, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

Due to this tug of war between sentiments, it is truly hard to say with any degree of certainty whether another crash or bear market will come.

Therefore, to sum it up:

While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

Nasdaq Hits Another Record Close – Too Good to Be True?

Is the Nasdaq’s performance since its sharp sell-off last Wednesday (Dec. 9) too good to be true? Truthfully, I don’t know. But it’s very possible – especially if shut down measurements become harsher and stricter and investors return to the “stay-at-home” trade that led markets from April through the end of October.

Additionally, I still have many concerns about tech valuations and their astoundingly inflated levels. Last week’s IPOs of DoorDash (DASH) and AirBnB (ABNB) reflect this and invoke traumatic memories of the dotcom bubble era. I believe that more pullbacks along the lines of last Wednesday (Dec. 9) could inevitably come in the short-term. Frankly, it would make me feel far more confident about initiating tech positions as well for the long-term.

Pay close attention to the RSI. While an overbought RSI does not automatically mean a trend reversal, I called keeping a very close eye on this for the Nasdaq. Last Wednesday’s (Dec. 9th) Nasdaq pullback after it exceeded a 70 RSI reflects that.

The Nasdaq has sharply rallied in the week since then. But its RSI is nearly 69. Monitor this . If the index goes on another bull-run and hits more record closes, it could surely exceed an RSI of 70 by the end of market close on Thursday (Dec. 17). I did not make a conviction call last week but I will now- if the RSI exceeds 70 this time, take profits- but don’t fully exit .

One thing I do like is how stable the volume has been this week and since the sharp sell-off last week. Stable volume is a good thing, especially if one is concerned about volatility. Low volume, especially a declining trend, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility.

On pessimistic days, having NASDAQ exposure is crucial because of all the “stay-at-home” trade. However, positive vaccine-related news always induces the risk of downward pressure on tech names – both on and off the NASDAQ. What concerns me most are sharp sell-offs due to overheating and mania. Don’t ever let anyone tell you “this time is different” if fears of the dot-com bubble are discussed. History repeats itself, especially in markets.

It is very hard to say with conviction to sell your tech shares though. However, as I said before – if the RSI exceeds 70 again – consider selling some shares and taking profits. For now, however, the NASDAQ stays a HOLD .

For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

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All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Salesforce.com Earnings Beat Wall Street Estimates But Slack Acquisition Steals Thunder

Salesforce.com Inc, an American cloud-based software company, reported better-than-expected profit in the third quarter of the fiscal year 2021 with revenue increasing 20% year-over-year to $5.42 billion, but shares plunged over 4% in extended trading on news of Slack acquisition.

The company reported GAAP net income of $1.08 billion, or $1.15 per share, compared with a loss of $109 million, or 12 cents per share a year ago. Adjusted earnings came to $1.74 a share. That higher than the market consensus for earnings of 75 cents per share and revenue of $5.25 billion.

“Wide-moat Salesforce reported strong results, including a meaningful upside to both revenue and non-GAAP EPS, while guidance for the fourth quarter was mixed. Stealing the thunder from fine results was the formal announcement that the company is acquiring Slack, and this dominated the earnings call. We have mixed feelings on the Slack acquisition,” said Dan Romanoff, equity analyst at Morningstar.

“We are maintaining our fair value estimate of $253 for Salesforce as good organic results are offset by the seemingly modest deleterious impact on shareholder value arising from the Slack acquisition. With the recent pullback, we think Salesforce shares are looking increasingly attractive,” Romanoff added.

Salesforce’s shares closed 1.81% lower at $241.35; traded over 4% lower at $231.50 in extended trading on Tuesday. However, the stock is up about 50% so far this year.

Salesforce Stock Price Forecast

Eighteen equity analysts forecast the average price in 12 months at $291.53 with a high forecast of $325.00 and a low forecast of $234.00. The average price target represents a 20.79% increase from the last price of $241.35. From those 18 analysts, 15 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $275 with a high of $332 under a bull-case scenario and $187 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the enterprise cloud computing solutions leader’s stock. Raymond James raised their target price to $280 from $255.

Several other analysts have also upgraded their stock outlook. Salesforce.com has been given a $275 price target by The Goldman Sachs Group. The brokerage currently has a “buy” rating on the CRM provider’s stock. Bernstein restated a “neutral” rating and set a $234 price target. Barclays boosted their price target to $315 from $264 and gave the stock an “overweight” rating.

Analyst Comments

“While Salesforce.com (CRM) remains one of our best secularly positioned names given enterprise IT spend prioritized towards digital transformation, we see current valuation reflective of long-term share gains within an estimated $175 billion TAM over the next 4 years and >$200 billion longer-term,” said Keith Weiss, equity analyst at Morgan Stanley.

“We see total revenue nearly doubling by FY24, but at CRM’s current scale and market cap, an increasing focus on FCF and earnings is likely necessary for further price appreciation. Our Equal-weight view on CRM shares is based on our $275 PT, which is based on 30X our CY25e FCF per share of $12.07, discounted back at 8.5%,” Weiss added.

Upside and Downside Risks

Risks to Upside: Slack Connect becomes a powerful contributor to net new customer additions. Net dollar retention rate stabilizes as new COVID-19 customers begin to meaningfully expand – highlighted by Morgan Stanley.

Risks to Downside: Competition from Microsoft, which offers a similar product for free to Office 365 users; Difficulty expanding outside of the IT department; Organizations defer to a bundled alternative (MSFT Teams, Google Workspace) in a weaker macro.

Check out FX Empire’s earnings calendar