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SPY Risk On Tech Earnings Season

If the S&P 500 ETF (NYSEARCA:SPY) index breaks 274, or worse, closes below 274 we’re most likely making further near term lows.

This is a risky time where many are looking for a low but the market has not proven to reverse trend.

We’ve been telling subscribers for a month or two that we’ve been cautious on the market. We either need a washout or a change in trend higher but so far have had neither so we think more risk ahead.

Because of that we’ve been taking more of a wait-and-see for tech earnings season rather than getting aggressive ahead of earnings reports.

With China tariff issues, dollar and rate issues we’d prefer to react to great reports than carry much risk in this time.

$SPY #stockmarket

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tech Stocks: More Risk For Earnings Season?

We’ve been telling subscribers that we’re cautious on stocks the last few weeks preferring lower exposure. Rising rates and tariff risk to earnings are key headwinds going into earnings season which starts next week.

Trade War Risk About To Hit Earnings?

So far the stock market has generally looked through trade war risk.

That said we’re approaching earnings season and that could change. While the news media can wiggle stocks, earnings are the ultimate driver to stocks.  If tariffs hit earnings reports that drops the E in the PE and likely can hit stocks.

We’re about to lap the tax benefits in early 2018 with tariffs in 2019. That earnings benefit gets lapped with an earnings drag. That could start this earnings season by way of company guidance.

That’s real for the market but we haven’t had to face earnings reality in the market yet for tariffs.

Except for Micron

You heard what Micron said about tariffs on their earnings call in September? It was one of the reasons they dropped guidance for next quarter and the stock dropped with it.

Micron said on tariffs “we’re working on steps to mitigate that. That obviously takes some time….. It’ll be a quarter or two before we start to see some benefit from the improvement there.”

But so far there’s been no let up in the build up of threats between the US and China. Even though Micron said they expect to see benefits in a couple of quarters, we don’t really know. They just dropped margin guidance because of tariffs. We’d guess other tech companies are in the same boat.

Micron Sneak Peak On Earnings Season?

Micron reports in between others and could be a sneak peak. We’re headed to hear how the rest of tech is going to deal with earnings as earnings season starts next week.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

Can Tesla Hold $300? And Some Other Random Thoughts

Source

Tesla’ stock held $300 yesterday but has been in a sharp downtrend since doubt surfaced about going private.

Go Profitable Or Go Private

At some point fundamentals will drive the shares again. Going profitable is much more valuable to shareholders than going private.

So while going private could fetch a measly $420, we still think going profitable can get the stock to $1000+ (join to see model). We may be low seeing Ark Investments expecting $4,000 per share.

Reuters ranks us with 4/5 stars for our estimates. Our numbers factor into the Street numbers. Our $1,000+ target is based on those same high ranking estimates

Timing

Tesla’s stock is for sure volatile so we want to try to build that position at good prices. Building at poor entries decreases confidence in the position. I want conviction to hold to $1,000 but to do that great entries help a lot.

Entering at strong entries helps have confidence to keep the position for the long term.

We had noted previously that there’s huge longer term support at about $280.  Yes yesterday looked like the stock can hold $300 which is a shorter term support.

But we’d note that the stock’s still been in a sharp downtrend.

How To Add

To add to a position we want to see it start moving up. We don’t mind getting in at strong long term supports because we’d expect the fundamentals will take us higher than that level. But even better than strong support levels is we’d simply want to see the stock stop moving down and start moving up. Somewhat simplistic, but it works.

We’ve seen managers go out of business by constantly averaging down. We don’t mind lower averages but only if we see the stock moving up.

We don’t mind adding even higher and missing the low. I’m never thinking I’m smart enough to catch bottoms. I’d rather see the stock move up, which others will then see and that can get things going all over again.

Earnings

Earnings report in October. Production and delivery whispers will become front and center again.

The Street seems way too low for $2.90 in 2019 based on our model. We’re at over $20.00 for 2019. That’s based on the company’s plans for 2018 and company comments on earnings calls about 2019. Sorry for the plug but our estimates are ranked highly too. We have no problem seeming way too high. Subscribers know we can be right more often than not.

Too Bearish

Analysts have been too bearish digging themselves a ditch they can’t get out of. Maybe they don’t have the experience, not sure, but going profitable is as good as you can get after years of losses.

I have no idea why analysts aren’t swiveling to accept that this story is about to get much much better. Earnings are what drive stock prices and you’re about to get a big swing in earnings as they go positive.

When Do Sell-Siders All Come Aboard

I do have an opinion why sell-siders are not swiveling. Sell-siders are also a herd. They want to see stock prices move up rather than have confidence in their work. 

We have confidence in our work to say that we expect the stock to rise big.  But when will the sell-side get aboard? They’ll jump aboard and believe in their work only when the stock hits $400 and $500. Then you’ll get all the upgrades that the story’s suddenly amazing. That’s how the sell-side works. But you knew that. They don’t get paid to predict very far or very high. That’s our opportunity to exploit.

Conclusion

I find myself writing about Tesla a lot publicly. I hear myself. This earnings inflection is so big. My whole career I’m focused on earnings. That’s what drives individual stock prices. That’s what really drives the market; that and interest rates.

So when you have a company saying we’re hitting earnings leverage as we ramp Model 3s and we’re going profitable, why not take heed?

I still read many comments and opinions out there that this company is a loss-maker. Ok, rearview mirror loss-maker. They are telling you profit. Nobody, not the sell side, not the bears, not the shorts, believe it.

That’s opportunity.

We haven’t had a multiple choice quiz in a while but I’m in the mood. Here goes. Let’s see who’s paying attention.

The ultimate driver for individual stock prices are
A) Really well articulated short stories from websites with over 30 million unique visitors.
B) Really well articulated short stories from websites with over 50 million unique visitors.
C) Really well articulated short stories from websites with over 60 million unique visitors.
D) Earnings.

This is a tough one so take your time and think about it.  Feel free to answer in comments.

Definition: Sell-side= brokerage firms that sell their research.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Fed Today: What To Watch

The Federal Reserve comes out with their decision at 2 EDT today. No change is expected but wording will be watched carefully. There is no press conference which also implies nothing major should change.

The stock market is down into the Fed meeting which is a little usual. Usually investors wait for the Fed decision to buy stocks. The Fed day is known to be one of the most bullish days on the calendar over time.

But with the trade news that President Trump is eyeing more tariffs and the tech rout the market’s trying to find some direction.

Another issue is the 10 year touched 3% yields today which may be a hint for the Fed decision. ADP came out with a strong jobs report today implying the economy’s on fire. The Fed sees that and they feel emboldened to keep their message to continue to raise rates this year.

The flip side though is that PCE price was only up .1% ex-food and energy. That has to spook the Fed because if they raise too much they risk a deflationary spiral. So while that may not come out today, the Fed, because of inflation, may not be able to raise much more.

High GDP and low inflation is a bullish stock market combination. But with the market trading down ahead of the decision it may be looking at the other data points like tariffs and yields to decide.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tech Export Control Risk Moving Right Along

We wrote yesterday that mixed signals were coming out of the White House about the extent of new trade measures.

Today the media felt the White House may have backed down from its harsh stance after seeing the market spill on Monday. But that may not be the case.

President Trump now packaging new foreign investment limits within previous legislation was interpreted by the media as backing down. But, to us that legislation would confirm Monday’s concerns not cancel them.

Our bigger issue is that of export limits and there too legislation is moving right along. I don’t see that as Trump backing down. I doubt China would view today’s news as the US backing down.

Export limits would mean that high tech companies could not partner or send goods to a country where their intellectual property was at risk.

Even though the Wall Street Journal reported that Trump “eases” his plans they went on to say, “A bill to make CFIUS reviews even tougher is making its way through Congress. It would create a new export control system to review whether overseas joint ventures are impoperly transferring critical technologies to foreign companies.”

The Wall Street Journal calls “even tougher” “eases.” Not sure how. Sounds like export control legislation risk is moving right along.

Why we’re worried about export control is because it would mean that if exports are denied rights to be sold companies lose revenues which hit earnings. That would hit stock prices.

And as for backing down from export control Commerce Secretary Wilbur Ross said Sunday, “All possibilities that would better protect American technology, including potential changes to export controls, are under review.”

It doesn’t sound like there’s been any change there. If anything it sounds like the US found its mechanism to move forward.

With this legislation moving right along, export control could risk revenues of companies with Chinese exposure.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

Did Tech Change Today?

Apparently The US is preparing an announcement for Friday or maybe sooner that could limit Chinese investment in the US but could also limit exports to China.

That would be a game changer if it comes to fruition.

Limiting exports would mean that companies with Chinese exposure would see their revenues disappear as soon as that law was enacted.  That is a bigger risk to tech than tariffs or investment limits.

Here’s What We Told Subscribers Around 8 AM Today

“I hate to say it but I think until we have clarity that there is a slowing of tensions, [China] exposed stocks should be reduced.”

NASDAQ (NYSEARCA:QQQ) opened down 1.4% and closes down 2.3% after making a scare lower. The Semiconductor Index (NYSEARCA:SMH) opened down 2.5% and closed down 3.2% having also made a scare lower.

Why Reduce?

While everybody was focused that China wouldn’t be able to invest in the US we cared much more about the other part of the news,

This is from CNBC this morning,

“The National Security Council and the Commerce Department are also putting together plans for tighter export controls that will not allow “industrially significant technology” to be exported to China.”

Companies won’t be allowed to export to China? If true, they probably mean only the top tech stories. That would reduce revenues. If true, instead of growing revenues and earnings leverage you’d get slower revenues and maybe even down earnings.

That’s a monster potential change to this tech earnings boom if it were to happen.

Steve Mnuchin To Clean Up

Steve Mnuchin came out mid-day in an attempt to calm tensions with a tweet but I think he only added fuel to the fire and stocks went down further. He said,

“On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.”

Steve Mnuchin not only confirmed the premarket stories but he made it out to be even worse. China’s not the only one stealing US intellectual property? This is a wider issue?

China would be heavy enough for markets but there are others?

The export ban would be on other countries too?  Not amazing to hear if you’re a bull. So our big earnings targets are they still good? Not sure. It would now depend on this next trade move.

Peter Navarro Contradicts Mnuchin

Trade advisor to the President, Peter Navarro though came out later and said,

“There is no plans to impose investment restrictions on any country that are interfering with our country. That is not the plan.”

Navarro did not deny the export restrictions but he did say that if other countries “interfere” the US has no plans to restrict them. That doesn’t really make any sense, right? Isn’t the whole point that if a country “interferes” the US would want to restrict them?

I didn’t get that one.

Sanders Contradicts Navarro

Sarah Huckabee Sanders, the White House press secretary seemed to discredit Navarro and said something was coming out. There are plans after all.

“As the secretary [Mnuchin] said, a statement will go out that targets all countries that are trying to steal our technology. We expect that to be out soon. We’ll keep you posted.”

What Now?

For our Buys, the stocks we like most, I want to step to the sidelines. It’s not easy but I want to wait for the dust to settle. We need to know if the US is going to cut off huge chunks of revenues for top tech companies or not. Are there bigger moves ahead or not.

We’ve had monster moves in our Buys if you’ve been following us. Scroll through our posts. This accelerated uncertainty is as good a reason as any to step aside after a monster move.

Markets don’t like uncertainty and it makes sense to see what’s in store.

The CNBC report said the US will come out with something on Friday. Huckabee hinted it may be sooner.

If we don’t get any export restrictions by earnings I want to build back on our favorite ideas for earnings reports. Until then I don’t want to be the one to bear the risk. An export ban, if any chance at all, is something different.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no positions.

Bullish For Tech Earnings Season

Tech earnings season is fast approaching. The end of Q2 is about a week away. Then quiet periods begin and a few pre-announcements drift in. Which ever way macro ends up taking this market we’re expecting positive reactions from tech in Q2 thanks to momentum and strong Q3 guides.

Earnings Drive Stocks

While macro and tariffs can push stocks around when there is no earnings news, once we enter earnings season, earnings news rules.

Earnings reports are the true arbiter for stock prices when that 90 day report flashes across and all the mutual funds, hedge funds and brokers need to quickly update their numbers and positions.

Where ever markets are located when earnings are reported, we think announcements take tech stocks generally higher on those reports. If markets are down into earnings reports that sets up an even better risk/reward.

Intel, on Thursday, was the first to come clean about an accelerated Q2.

We think there is more to come from many other top tech companies.

Tech Leads

Companies in Q1 had the fastest earnings growth since 2010 at 25% and the most upside surprises since, at least 2008. The tech sector led those upside surprises.

Q2 is expected to also be a strong quarter and even though the Street is expecting a slight slowdown in EPS growth to 19%. 19% would mark the second fastest growth since 2010. We think, though based on our work, tech has the potential to show similar if not better results as we saw in Q1.

Conclusion

Macro news may shake tech stocks around without earnings news. We think the most important fundamental news that exists for stocks, earnings, will be a support to take tech stocks higher.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We are long QQQ for a customer.

What FANG Stock Did Not Break Out… Yet?

Facebook, Amazon, and Netflix all broke out to new highs this year. But there’s a G in FANG. Google will most likely be next to break out to new highs. We think there is enough fundamental reason to do it as we’ll explain.

About two months ago on April 18th we told you we thought FANG stocks were headed to new highs. We’ve been bullish, as you know.

FB AMZN NFLX GOOG
Source

Since then Facebook (NASDAQ:FB) hit a new high on June 14th, Amazon (NASDAQ:AMZN) on May 30th on a closing basis and Netflix (NASDAQ:NFLX) on May 23rd.

The last letter in FANG is also about to be last to break out, Google (NASDAQ:GOOG)(NASDAQ:GOOGL).

Fundamentals Driving FANG To New Highs 

Each FANG stock has been seeing accelerating revenue growth.

Here’s the numbers.

2017 2017 2018
Q3 Q4 Q1
Google 27772 32323 31146
Rev Growth 23.7% 24.0% 25.8%
Netflix 2.9848 3.2857 3.7010
Rev Growth 30.3% 32.6% 40.4%
Amazon 43744 60453 51042
Rev Growth 33.7% 38.2% 42.9%
FB 10328 12972 11966
Rev Growth 47.3% 47.3% 49.0%

Notice a trend? Each FANG stock is seeing accelerating revenue growth. That drives the earnings model and as you know earnings drive stocks.

As for Google, based on our latest work, we think GDPR hurts smaller publishers and forces advertisers to the safer larger plays like Google. Given potential benefits from the new privacy legislation we think Google has more to go on the upside.

SUBSCRIBE: BEST TECH STOCK BUYS

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no positions but are looking to enter on weakness each of the stocks above for a customer.

Citron’s Netflix Report Left One Word Out

Citron Research, who has had some strong calls in the past has again gone after Netflix (NASDAQ:NFLX). We need to pay attention but we think he’s missing one key word; earnings.

He cited increased competition coming from AT&T and Time Warner and listed many drivers that could tumble Netflix.

He also went after a Goldman analyst that raised their target by upping their EV/EBIDTA multiple.  We agree that raising a multiple is a lower quality method to chase a stock.

That said earnings growth has been accelerating and that’s the real story here.

Need To Pay Attention To The Missing Word In Citron’s Report, Earnings

Full disclosure, Citron did mention the word earnings but not in its context…

Citron said,

“On NFLX’s Q1’18 earnings call, Hastings noted: “We’ll spend over $10 billion on content and marketing and $1.3 billion on tech… we’re much more of a media company in that way than pure tech.”

That was the only mention of the word earnings but Netflix is turning into an earnings story as we’ve been talking about.

And direct to Citron’s point of “$10 billion on content and marketing” Netflix is saying that the spend is starting to grow slower than revenues which drives profit leverage and faster earnings.

Here’s what Netflix said on their last earnings call.

“Well, you’re definitely seeing revenue grow faster than content already, and that’s where operating margin is coming from.” 

Netflix went on to say, “We think we’re after a big opportunity, and the bigger the business we are, the higher that margin could be. We’re certainly not down [for margins].”

So while the absolute spend number is an eye-popping $10 billion, they are starting to lever those expenses which means this earnings story is getting better, not worse.

That was on their April earnings call.

On their January earnings call they said,

“…working capital needs on content start to moderate.”

Netflix continued on that content spend,

“…but we are seeing some of those pressures moderate a bit.”

So the years of huge growth of content is starting to moderate just as their revenues are accelerating. Netflix’ largest expense is moderating. If so, which way will earnings growth go? We think higher.

EPS Growth Accelerating

With revenues on fire and their costs not matching revenues earnings have been accelerating at Netflix.


2015 2016 2017 E’18
Year EPS 0.26 0.42 1.25 3.69
Growth -59% 62% 198% 195%

2017 earnings were up almost 200% and that’s what we have modeled for 2018 based on their accelerating revenue trends.

Our 2019 number though is how we’re valuing Netflix. Our 2019 expectation is for $6.50 versus the Street’s $4.59.

We’re using a 100 PE which is half the 200% growth rate. A PEG ratio of .5 is actually cheap while everybody perceives Netflix as expensive.

Conclusion

Citron has had some amazing calls like Valeant (NYSE:VRX). Netflix, though is a tough one to step into the ring with. The stock has had a monster run which brings on shorts. But we have our eye on the prize which is the potential for a 2019 EPS estimate of $6.50. We respect their calls but we think the real driver is earnings.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no position currently but are planning to open a position on a pullback.

FANG Stocks Alive And Well And New Highs

Many have been calling for the death of FANG Stocks. As you know we’ve been bulls. Amazon and Netflix are hitting new highs taking our FANG Stock Index to new all-time highs. Facebook is threatening to hit new highs and we think Google’s not far behind.

What’s your guess what this means for the rest of tech? We think it’s good. If the leaders are leading us to new highs the followers can follow.  Let’s review.

FANG Stocks Dead?

Here’s some headlines we saw out there.
Trade Dead
Dead Trade
Cloud Kings are better than FANG stocks.”

Jim Cramer crowned the name FANG and seemed to be giving up hope.

Not Dead

We’ve been expecting new highs for FANG stocks (here here here, and more). And we got em (Chart above).

Earnings Driven New Highs

What we love about these new highs are that they are earnings driven. Netflix, Amazon and Facebook were up big after they reported earnings thanks to accelerating numbers. That means institutional investors saw the fundamentals as that much better.  Google was the only stock that traded down but made up its losses in twelve trading days.

We have 85% 12 month upside left for Netflix, 50% upside for Amazon, 66% upside for Google and way too much upside for Facebook.

Conclusion

If the tech leading FANG stocks are taking us to new highs what happens to the followers? We think our FANG Stock Index hitting new highs tells you the markets and the rest of tech are not far behind.


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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.