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With Monday earning reports out of the way, it is now time to turn our attention to the reports due Tuesday. Interestingly, Half of FAANG are releasing earnings reports today. For this reason, expect a hyperactive NASDAQ during the Tuesday session.

Let's start with Apple Inc (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT)

The two largest companies in the US, APPL and MSFT, are reporting one after another on Tuesday.

The Market Analyst seated to the left of me, Pavan Sharma, from the equities research arm of BlackBull Markets (check them out for astute stock picks), shared the following interesting graphic from 2020 with me that demonstrates the enormity of Apple.

airpods

This graphic begs the question; how many Air pods did Apple sell in Q3 2021, and how much this device contributes to the Company's Q3 revenue?

Revenue for Apple is anticipated to be US $73B, up by more than US $10B over the PCP. Air pods might be a smaller portion of the Company's Q3 revenue depending on how well the iPhone 12 has sold in the quarter and whether Apple has experienced any Air pod supply constraints.

When it comes to Microsoft, investors will want to see if it has maintained its cloud service revenue growth. Cloud is now the software Company's most significant revenue stream and should hopefully account for more than US $14B of the US $44B expected revenue for the quarter. Microsoft's past success in cloud computing might be its downfall this quarter. Maintaining a 25% YoY growth in its cloud division is a big ask.

As an aside, BlackBull Markets research arm's top tech pick is Apple for several reasons. The main reason being its strong brand presence and ability to make healthy margins on its wide variety of products and services with strong growth potential anticipated on new products and services as well - particularly digital services complementary to its core business. Apple also has a solid balance sheet with ~$196 billion in cash, which can be deployed to reinvest in new offerings or acquisitions, and on traditional valuation metrics is more attractively priced than its mega-cap peers with a solid history of paying a growing dividend.

APPL and MFT earning reports will drop after the closing bell on Tuesday.

Mattel (NASDAQ: MAT) likely to surprise

Because I covered Hasbro (NASDAQ: HAS) yesterday, I want to cover Mattel, another big toymaker, today.

Mattel EPS

Mattel has made a habit of making pessimistic projections, whether underselling their projected profits or overselling their projected losses. For this reason, the Company's actual earnings-per-share are likely to surprise the market when Mattel releases its earnings report after Tuesday trading concludes.

Mattel's earnings for its Q2 operation is expected to be slightly above USD 900M, up 23% from the PCP when it was contending with the Covid-related closure of many of its retail partners.

Other earning reports to watch Tuesday:

Tech Stocks: Growth turned Safe Haven?

Large tech stocks have rebounded spectacularly in an environment where everyone is fully dependent on the wonders of the internet. The NASDAQ, which is heavily weighted to technology stocks, has outperformed the S&P 500 year to date by just under 14%, reaching an all-time high. Many analysts state that the market has been overstretched – with the Fed propping up the stock market and retail investors buying the dip. With regards to tech stocks, however, are these prices justified?

NASDAQ vs SP500

Tech Stocks - Premiums finally justified?

To keep it relatively simple, we’ll stick to the FANG stocks. If we take a look at their P/E Ratios over the past five years

FANG P/E Ratios

We can see that Google and Netflix have historically traded at extremely bloated multiples, with Facebook and Apple trading at multiples relatively closer to earth. However, if we look at the current prices (as of 10th / 06 / 2020),

FANG Current vs Average P/E Ratios

They are all currently trading below their average P/E ratio over the last 5 years. A bullish case could be made on the premise that if investors are consistently paying for their premiums even when their premiums were consistently questioned, would it not make sense that they have tentatively earned their bonus due to their ability to generate free cash flow during unprecedented times like these? If they were historically overpriced before the pandemic, would that suggest that they’re currently fairly priced? If we take it a step further – if they were priced reasonably due to their growth rate before the pandemic – would that suggest they’re currently underpriced?

FANG Net Profit Margins
FANG Cashflow (Billions)

Is that a tank or a Tech stocks’ balance sheet?

With central banks lowering interest rates to 0, the search for yield has become short of impossible. Furthermore, treasuries have not performed as well as gold as the ballast for a typical portfolio. The cash position with the likes Facebook, Amazon, Microsoft, and Google are reaching heights even Berkshire Hathaway has not seen, with Microsoft also having the covenant Triple-A rating on their bonds. Their ability to generate revenue regardless of the conditions alongside fortress-like balance sheet solidify their position as a haven in many portfolios. In a world where interest rates are low, stocks like the Apples and Microsoft’s provide a chance at a positive yield dividend and capital appreciation. 

Not everyone is convinced in the Stock rally

PNC’s Financial Services Group, who amassed $14 Billion recently from the sale of its BlackRock stock, is waiting for valuations to cool off before putting their capital to use. Chief Executive Officer William Demchak stated that PNC “will be patient” and that “[the coronavirus] hasn’t begun to play out in our economy in terms of what the impacts are and what the opportunity set will be that comes out of it.”  

 Are you joining the tech stock rally?