David Morrison, Senior Market Analyst at Trade Nation, shares his opinion on what stock you should sell this week, and what stock you should buy.
With the extended sell-off we’ve had since the beginning of this year there are fewer shorting opportunities now than two months ago. On top of this, my current investment thesis is that global stock indices, in particular the S&P 500, are close to bottoming and should soon start to bounce quite aggressively. But the semiconductor designer and fabricator Intel is currently out of favour and may remain so. Over the years there has been much criticism of the company’s direction which even the replacement of CEO Bob Swan by Pat Gelsinger last year has failed to halt. In a big change of direction, the company intends to spend over $43 billion on new chip fabrication plants, for Intel chips but also other chip designers. This may pay off over time but could weigh on the company in the near term. In addition, Intel sources vital raw materials such as neon and palladium from Ukraine and Russia respectively. If hostilities result in further sanctions and supply disruptions, then this could be a serious issue going forward. The stock is currently testing support at around $44. A sustained break below here could signal further weakness for the chip giant.
While you wouldn’t know it from the current state of the markets, the fourth-quarter earnings season has been a great success so far. According to FactSet, of the 80% of S&P 500 constituents that have reported, 78% have beaten expectations for both revenues and earnings per share. That’s why the overnight collapse in the share prices of Netflix, Meta Platforms (Facebook) and Peloton following their earnings releases was such a shock. Netflix slumped 21%, Meta lost over 24% and Peloton plunged 33%. It was their weaker-than-expected subscriber numbers that did the damage, as active users are a key metric for tech companies. Roku also suffered. The streaming service fell 29% in the first few hours following its own update. That meant the stock was down around 75% since its peak last summer. It is yet another of those companies that outperformed during the pandemic and is now paying the price. But while the last quarter was disappointing in terms of missed revenue expectations and guidance for the current quarter, it’s possible to argue the reaction is overdone, with current market conditions playing a large part. The poor results were mostly down to supply chain disruptions, which, hopefully, are being ironed out. In addition, Roku beat expectations for new sign-ups, and the average revenue per user on a trailing 12-month basis was up 43% from the same time last year. By hours streamed, Roku is the top platform in the US, Canada, and Mexico. Lastly, the company reaffirmed its revenue guidance for 2022. The company is aggressively investing for growth with a long-term perspective. It’s certainly not Peloton. I know this is a bit of a punt, but it is hard to pass by this opportunity given the sharp selloff in the stock price.
Disclaimer: The information contained within this article is for educational and entertainment purposes ONLY. The commentary provided is the opinion of the author and should NOT be considered as personalised advice or recommendation. The information provided in this article should NOT be a person’s sole basis for an investment decision. All investments are made at the reader’s own risk.