This story originally appeared on Best Stocks
Table of Contents
China tech
Tencent, a Chinese internet company, and JD.com, an e-commerce heavyweight, were named by the investment firm as two stocks that may be relatively immune to the impact of regulatory uncertainty in the short run.
According to Lorraine Tan, Morningstar’s director of equity research in Asia, Tencent has a “fairly well-diversified earnings base.”
In response to recent regulatory scrutiny of Tencent’s gaming business, Tan stated that the company’s other revenue streams, such as cloud computing and WeChat, will allow it to “deflect” some of the expected regulatory pressure.
Some of the measures aimed at reducing… monopolistic practices will actually benefit some of the smaller e-commerce players, including JD.com…
Tan, Lorraine
According to the analyst, in the case of JD.com, the perception of being less dominant than industry leader Alibaba may allow JD to fly under the radar of Beijing’s regulatory crackdown.
In April, Chinese regulators slapped Alibaba with a $2.82 billion fine for alleged market dominance abuse.
Morningstar has identified two stocks that are “more sheltered” from China’s technological scrutiny.
UBS selects its top investment ideas for China, including ‘high quality’ real estate investments.
Goldman Sachs recommends China chip stocks to buy as the US-China tech rivalry heats up.
“We do believe that some of the measures aimed at reducing… monopolistic practices will actually benefit some of the smaller e-commerce players — and JD.com is one of them, which we believe is relatively well-entrenched right now.” “And we believe they will benefit,” Tan said.
Regulatory uncertainty has been a major overhang on China’s massive tech sector in recent months, which has enjoyed unrestricted growth for years. The crackdown, aimed primarily at anti-monopolistic behavior, has had a significant impact on investor sentiment, wiping billions of dollars off tech stocks in August.
The Hang Seng Tech index, which tracks the 30 largest technology firms listed in Hong Kong, had fallen around 24 percent for the year as of Monday’s close.
Tencent and JD.com were not immune to the market’s wrath, with their Hong Kong-listed shares falling around 14 percent and 9 percent, respectively, during the same period.
Buy any dips in Apple stock (APPL)
The ongoing global semiconductor shortage has dampened expectations for Apple’s iPhone sales. Bloomberg News reported on Tuesday that the company would reduce its production targets for 2021 due to the shortage.
However, Morgan Stanley’s Katy Huberty, who was Institutional Investor’s No. 1 ranked analyst for technology hardware in 2020.
“We are buyers of any near-term AAPL share price weakness due to iPhone supply chain disruption because AAPL is likely to receive more supply than competitors, demand isn’t perishable, and our FY22 estimates are unlikely to change materially even if revenue and EPS shift across quarters,” according to the note.
Given Apple’s size and position as a market leader, supply chain issues should affect it less than competitors, according to Huberty.
“Apple’s significant revenue outperformance – a 7% increase over consensus forecasts YTD – is consistent with our supplier checks, which show that Apple is given preferential treatment during periods of supply tightness.” As a result, if Apple is unable to meet near-term demand, the shortfall at competitors is likely to be even greater, creating an opportunity for share gains,” according to the note.
Apple’s stock has underperformed in 2021, rising by less than 7%. In addition, the stock has dropped 6.8 percent since the end of August.
Morgan Stanley rates Apple as overweight, with a $168 price target. The target is 18.7 percent higher than the stock’s closing price on Tuesday.
Plug Power (PLUG) the hydrogen stock
Analyst Stephen Byrd raised Plug Power from equal weight to overweight in a note to clients on Wednesday, stating that hydrogen power was poised to be an important part of the transition to clean energy.
“With the announcement of several strategic partnerships, $4 billion in cash and cash equivalents on its balance sheet, accelerating revenue growth, and the potential for significant upside from legislative support,” the note said.
Plug Power’s stock rose dramatically in 2020 as investors flocked to clean energy plays, but the stock has given back some of those gains this year.
Morgan Stanley expects several key updates and announcements at the company’s investor day on Thursday, which could boost the stock.
“Given the impact that large customer announcements can have on revenue guidance, we believe that an increase in revenue guidance of $200-$600 million for 2024 is not an unreasonable expectation.” As a result, we are increasing our revenue forecast for 2024 by $300 million to $2 billion,” according to the note.
Plug Power’s stock jumped 6.8 percent in premarket trading following the upgrade.
SoFi promoted at overweight
SoFi was initiated with an overweight rating by analyst Betsy Graseck. Since the company went public last year, the stock has been volatile, with shares dropping roughly 30% since their peak in mid-June.
Morgan Stanley, on the other hand, stated that one of SoFi’s major business lines should see an increase in 2022.
“Student loan refinancing has been put on hold since the US government administration deferred federal student loans in March 2020.” Why refinance into a lower rate when you don’t have to pay anything and only accrue interest on your federal loan during deferment? “This all changes in February 2022,” the firm said in a note to clients on Monday.
According to Morgan Stanley, SoFi is also the market leader among financial technology companies.
“Competition among challenger FinTechs for Gen Y & Z is increasing, but SOFI has a leg up given its roots in the most difficult part of consumer finance, lending, along with a robust digital offering,” according to the note.
Bank of America favourite tech stocks
Earnings season began this week, and analysts anticipate another strong set of results. According to FactSet, third-quarter profits are expected to have increased 27.6 percent year on year. This would be the third-highest rate of growth since 2010.
According to Bank of America, this is the “make-or-break” quarter for guidance. According to the company, it is critical to understand what to own and what to avoid.
The firm combed through its buy-rated S&P 500 stocks to find the names that its analysts believe will outperform the market.
Bank of America’s earnings and sales estimates for these stocks are higher than the market’s. Each stock was given an earnings per share and sales Z-score, which represents the number of standard deviations that Bank of America analysts believe are above consensus.
Last quarter, all of the listed stocks outperformed in terms of earnings per share and sales.
Take a look at this list:
Energy stocks have been performing well as oil prices continue to rise. Exxon Mobil and Occidental Petroleum are two energy companies that made Bank of America’s list. Occidental is expected to release its earnings on November 4, while Exxon is expected to release its earnings on October 29.
Morgan Stanley is the only major American bank on the list. On Thursday, the financial firm will release its quarterly results. Discover Financial was also included on the list compiled by Bank of America.
The Wall Street firm anticipates that social media behemoth Facebook will outperform consensus estimates. Facebook shares have recently declined as a result of an app outage and a whistleblower report. The tech behemoth reports earnings on October 25.
NetApp, which reports earnings in November, is the other technology company on the list that is expected to outperform Wall Street this earnings season.
Bank of America’s list also included Thermo Fisher, Honeywell International, Quest Diagnostics, and Raytheon Technologies.
Dividend stocks for stability
According to Credit Suisse, stock prices are 27 percent higher than pre-pandemic highs and 93 percent higher than post-pandemic lows. However, the firm noted that the S&P 500 dividend yield has fallen to 1.3 percent from 1.8 percent prior to the pandemic. This is significantly lower than the 1.58 percent yield on a 10-year Treasury note.
This is because, while stock prices have risen, dividends have not kept pace, with companies hesitant to increase payouts due to the pandemic’s uncertainty. As a result, dividend investors face a low-income environment.
However, for income investors, there are still options available. Analysts compiled a list of stocks with relatively high dividend yields and long-term stability. The list is dominated by financial institutions. General Dynamics is another defense company, and Snap-On is a tool company.
Analysts first screened S&P Capital IQ Pro data for stocks with a dividend yield of more than 2%, then narrowed the list to those with dividend payout ratios in the S&P 500’s bottom quartile. The payout ratio indicates how much of a company’s earnings are distributed in the form of dividends.
Analysts narrowed its search for stable companies even further by selecting only stocks with the highest tier of credit ratings from Standard & Poor’s. In terms of total return, each stock on this list outperforms the market.
JPMorgan Chase, State Street, and Bank of New York Mellon are among the companies on the list, as are insurance titans MetLife, Aflac, and Allstate. JPMorgan Chase is set to report quarterly earnings before the market opens on Wednesday.
A lower payout ratio typically indicates that a company can pay out dividends while still reinvesting the majority of its earnings in operations. A higher ratio may indicate less stability, implying that the company spends a large portion of its earnings on dividend payouts and has less to reinvest in the business or cover future dividends.
Aflac has the next lowest payout ratio on the list, which is around 21%. Year-to-date returns for Allstate and Aflac are 18.6 percent and 24.8 percent, respectively.
MetLife has the highest dividend yield — 2.95 percent — as well as the highest year-to-date stock return — 42 percent.
Snap-On, which manufactures tools and equipment for the automotive industry, is at the bottom of the list. As vehicle manufacturers look to innovate and integrate technological upgrades over the next few years, the company may be well positioned for strong earnings.
General Dynamics, which manufactures business jets and combat vehicles, was also included on the list. It anticipates a rebound in demand for the former as the economy continues to improve. The company recently received nine-figure contracts from the United States Army and Navy.