US and European stocks
Apple shares fell 20% from their all-time high in early September. The AAPL drawdown created interesting buying opportunities.
Factors in favor of buying
- A support zone passes in the region of $ 106–100, from where there will be a high probability of a new rebound. Quote for the first half of trading on Wednesday, 09/23/2020 - $ 110.4.
- The forecast assumes a 17.1% increase in earnings per share (EPS) over the next 12 months. In the next five years, an average of 12.5% per year is expected. • New iPhone models will be presented in October. This time it is possible to use 5G technology.
- The strength of the brand partly justifies the high cost of apple products. There is a whole "club" of Apple fans who buy new iPhones from year to year. Apple's complex ecosystem facilitates the purchase of not only core products, but also secondary products of the company. Due to this, the service segment is actively developing. In September, the company unveiled the Apple One package, which brings together music, TV, games, news, fitness, and the cloud. Users will be able to pay by subscription for everything at once, rather than for individual options.
- Apple is actively generating free cash flows (FCF, operating flows minus capex). In the second quarter, FCF to $ 14.7 billion, “cash and short-term investments” - $ 93 billion, debt - $ 113.4 billion. This indicates the financial stability of the company, allows it to invest in new technologies, pay dividends and carry out share buybacks. Apple shares have a dividend yield of 0.8% per annum.
- The median target for analysts is 12 months. - $ 125. Quote for the first half of trading on Wednesday, 09/23/2020 - $ 110.4.
purchase of AAPL in the region of $ 103 with a target of $ 115. The potential yield is about 10%.
- In case of consolidation of securities below $ 100, a descent to $ 95 is possible.
- Strong competition in the smartphone market, given the high cost of the iPhone. The problem is especially acute in China, where the majority of the population is still not able to pay.
- With each new iPhone, the opportunities for revolutionary changes to the device are diminishing, which lengthens the smartphone update cycle for users.
- Anti-monopoly attacks by regulators.
The company's chart for the past six months has shown significant growth; in early September, the growing channel was exited as a result of correction. However, we expect the quotes to return to it and continue the growing movement. Strong 3Q 2020 earnings forecasts remain valid.
Purchase from the level of $ 40.3 (on the SPB exchange) with the aim of $ 45 for a period of 6 months.
Potential profitability of the transaction = 11.7% excluding dividends. Dividends for the specified period could bring in another $ 1.08-1.1, or about 2.7%.
- Dividends. The current annual dividend yield is 3.6%. The company is not a dividend aristocrat, as it has been paying dividends for less than 25 years, but throughout the history of payments since 2011, it has certainly increased them year after year.
- The paper has undergone a significant correction. Cisco shares have corrected sharply, first in August after the publication of the quarterly report, and later on the background of the general market sales in the high-tech sector. In August, investors were disappointed by the company's forecast for a drop in revenue in the third quarter, which Cisco gave despite the fact that many of the largest corporations abandoned their forecasts, citing uncertainty about the impact of the pandemic.
- The buyback may resume. The company suspended buyback in the second quarter, which is difficult for the entire American economy, and this moment is taken into account in prices. If the uncertainty about the development of the situation with COVID-19 is removed as the vaccine is launched and social activity is fully restored, the share buyback may be resumed in the first half of next year.
- Strong financial position of the company. In fiscal 2020 (ended July), Cisco generated $ 14.7 billion in free cash flow, which is largely unchanged from fiscal 2019. Cisco ended the year with $ 29.4 billion in cash and cash equivalents and short-term investments. The weak forecast for revenue in August was accompanied by comments from the management on the forthcoming cuts in operating expenses.
- 5G networks. An equipment maker could gain momentum as it moves closer to building 5G wireless networks. Consensus forecast. Analysts are generally moderately positive on Cisco shares, with consensus at $ 49.2, according to Reuters.
- Second wave of coronavirus and delay in mass vaccination. In the face of the coronavirus situation, companies have cut their IT spending.
- Cisco is committed to moving from on-premises data centers to hybrid cloud computing infrastructure. Lagging behind competitors in this process is a risk, but the company has the opportunity for transformation, the means for M&A transactions.
TikTok may be blocked from downloading in the United States as early as September 20, and this is a positive moment for Alphabet. The company's video services business (especially Youtube) is seriously affected by the competition with the Chinese service.
At the same time, the company recently released a positive report for the 2nd quarter, and many investment banks raised their targets for securities to an average of $ 1700- $ 1800. Against the background of the general rally, there is a high probability of further growth in the stock.
Buy from the level of $ 1415 with a target of $ 1499.4.
The loss limit is set at the price level of $ 1400
Facebook shares plummet 18% from their all-time high in August. The FB drawdown created interesting buying opportunities.
We recommend buying around $ 240 with a potential return of about 12%.
Factors in favor of buying
- The securities approached the support zone of $ 245-235. The probability of a rebound from this zone is quite high.
- The coronavirus pandemic has heightened audience interest in online communication and recreation. In the second quarter, the audience of all FB (MAU) platforms, including Instagram, Messenger and WhatsApp, reached 3.1 billion. The social network itself accounted for 2.7 billion. New habits and consumption patterns have emerged, which not everyone will abandon.
- The forecast assumes a 19.3% increase in earnings per share (EPS) over the next 12 months. In the next five years, it is expected + 16.4% on average per year. The company's net debt is negative (debt minus cash, - $ 57.8 billion), which makes the company financially stable and allows it to invest in new projects.
- The digital advertising market is growing rapidly. EMarketer's forecast assumes an increase in spending in this area by at least 10% annually from 2021 to 2023. In fact, a monopoly has formed on the global online advertising market - Facebook and Google.
- Targeted advertising in social networks is a special marketing promotion tool that differs from contextual and display advertising, and allows you to work with “warm” demand.
- Facebook is developing new services. Instagram is actively used as a direct selling tool, a shopping platform. In early August, the company announced the creation of a direct competitor to TikTok, launching the Reels feature for Instagram. It allows you to create short videos with audio overlay and additional effects.
- The median target for analysts is 12 months. - $ 297.5. Quote for the first half of trading on Tuesday, 09/22/2020 - $ 250.
buying FB in the region of $ 240 with a goal of $ 269. The potential yield is about 12%.
- In case of consolidation of securities below $ 230, a descent to the region of $ 220-210 is possible.
- Antitrust attacks by regulators, concerns about the safety of users' personal data, initiatives in the field of introducing a "digital" tax on the income of the largest tech corporations. This has already increased Facebook's costs of data security and content moderation.
- At the end of June, major advertisers suspended their Facebook ad campaigns for a month, some of them until the end of the year. In their opinion, the social network poorly moderates messages that promote violence and racism. Small and medium businesses are not prone to PR of this kind, but there is another problem - the weakening of the global economy due to the coronavirus pandemic
The Walt Disney Company operates in various areas of the media industry - owns a range of electronic, paper, radio and television broadcast media, which are part of the Disney / ABC Television and ESPN divisions, as well as a line of Walt Disney theme parks and resorts - Disneylands are located in the USA, Shanghai, Paris, Tokyo and Hong Kong. Walt Disney's best-known business for nearly a century has been in the studio producing films, music and theater productions. The conglomerate includes studios such as Walt Disney Studios Motion Pictures, Walt Disney Animation Studios, Pixar, Marvel, Touchstone Pictures, LucasFilm and others. Last year, the company launched the Disney + media streaming platform. In the second quarter, as we expected, the negative impact of the pandemic on the financial results of Disney was very pronounced due to idle parks and a slowdown in the studio business. However, we note that the Disney + streaming platform is able to recover some of the revenue lost due to quarantine measures, and otherwise we also saw no reason to refuse the investment in this blue chip. The media giant's stock has surpassed our target level since our last recommendation update in mid-June, yielding 13.3% in less than 2 months. We see moderate potential for further strengthening in Walt Disney stock over the medium term.
Technical picture DIS, W1:
Internet retailer shares fell 17% from their all-time high. Quote at Friday close - $ 2955. There is a support zone in the region of $ 2900-2800. So the probability of a rebound to the $ 3100 region is growing. If consolidated below $ 2,800, shares may fall to $ 2,600.
The home depot
The Home Depot is an American retail chain that is the world's largest selling repair tools and building materials. The company is headquartered in Wienings. The company employs 355 thousand people. The chain operates 2,144 stores in the USA, Canada, Mexico and China. Net income for the second fiscal quarter ended August 2 was $ 4.33 billion or $ 4.02 per share, compared with earnings of $ 3.48 billion or $ 3.17 per share a year earlier, while analysts had expected this figure to level of $ 3.68 per share. The company's revenue in the period under review increased from $ 30.84 billion a year earlier to $ 38.05 billion, which was higher than the average analysts' forecast of $ 34.53 billion. At the same time, like-for-like sales grew by 23.4% y / y, exceeding analysts' expectations of 12, 2% y / y. It should be noted that since the beginning of the year, Home Depot shares have risen in price by 32%. “Our business investment has significantly increased our agility, allowing us to respond quickly to change while continuing to provide a safe working environment,” said Craig Menier, Chief Executive Officer of Home Depot. The retailer is a good candidate for inclusion in a long-term portfolio even amid the COVID-19 situation and the escalating trade war between the United States and China. Quarterly dividends have risen 500% over the past decade, and a payout ratio of just 42% offers good potential for further growth.
Technical picture HD, W1:
Walmart, Inc. Is an American company that operates the world's largest wholesale and retail chain operating under the Walmart brand. It is headquartered in Bentonville, Arkansas. Net income for the second fiscal quarter increased by 79.5% YoY and reached $ 6.48 billion or $ 2.27 per share, while adjusted earnings were at $ 1.56 per share, beating analysts' forecasts of $ 1.25 per share. per share. Cumulative sales rose 5.6% YoY to $ 137.74 billion, beating market expectations, while LFL sales in the US increased 9.3% YoY, which also turned out to be better than expected. It is worth noting that the sharp rise in demand for online purchases contributed to the improvement in financial results. In addition to food products, consumers purchased online appliances, electronics, toys and other products. As a consequence, Walmart's online sales soared 97% YoY. We forecast online sales to continue to grow as the coronavirus continues to spread. Notably, since our previous analysis (namely the end of June of this year) Walmart has reached our target price of $ 135, bringing investors a 14% yield, and the company's long-term upside potential remains. The coronavirus pandemic has made changes in consumer preferences, and structural changes in shopping are likely to persist for the next few years, and hence Walmart's financial performance will continue to improve. Considering the above, we maintain our Buy recommendation for Walmart and set their target price for revision.
Technical picture WMT, W1:
It is noteworthy that, despite the coronavirus pandemic, Pfizer raised its forecasts for the current year - for net earnings per share from $ 2.82-292 to $ 2.85-2.95, and for revenue - from $ 48.5-50. 5 billion to $ 48.6-50.6 billion. Pfizer shares are among our recommendations with a "Buy" rating as a conservative long-term investment. Over the past month, in particular, the paper brought a yield of 11.5%. Pfizer's Q2 earnings were in line with our optimistic expectations despite the scale of the impact of the pandemic on the US economy. The COVID-19 situation had a minimal negative impact on the pharmaceutical giant's business - the net negative effect of the pandemic on the company's revenues in the second quarter was only $ 500 million or 4% and was mainly due to the refusal of Americans from routine medical examinations by pediatricians and therapists and a decrease in demand for certain types of products in China. We highly appreciate Pfizer's resilience to the crisis in an unprecedented environment and believe that the stability of the company's financial results will be appreciated by investors as well, therefore we have no reason to cancel our “Buy” recommendation for Pfizer shares and set the target price for revision.
Technical picture of PFE, W1:
Johnson & Johnson
Johnson & Johnson is an American holding company founded in 1886 and leads a group of 265 subsidiaries around the world manufacturing pharmaceuticals, cosmetics, sanitary and hygiene products, and medical equipment. Over the past several decades, the company has been actively expanding, adding more and more product lines to the list of manufactured products. This was done through acquisitions of various firms, and today the market capitalization of J&J is about $ 390 billion. Over the past 12 months, the company's securities have brought investors a 13.3% return, and we believe that their attractiveness in the long term remains. First, the company remains undervalued in relation to the sector as a whole. Second, after reporting higher sales and profits in the second quarter, J&J improved its forecasts for the full year. Thirdly, against the backdrop of the coronavirus pandemic, the company began assessing the existing portfolio of antiviral drugs, and also began developing a vaccine against COVID-19, which was already tested in humans last week. In early 2021, the company expects to obtain approval for the use of its vaccine and expects that by April next year it will be able to produce 600-900 million doses. We maintain our Buy recommendation for Johnson & Johnson shares and maintain our target level for the instrument at $ 170.00, which is equivalent to 14.8% upside potential for securities from current levels.
Technical picture of JNJ, W1:
Merck & Co
Merck & Co is an international pharmaceutical company. Develops, manufactures and distributes vaccines and medicines. Also publishes non-commercial medical journals, reference books. In all countries except the USA and Canada, the company's products are sold under the Merck Sharp & Dohme brand. The company operates in 120 countries: North America, Latin America, Europe, Africa, Asia and the Middle East. Merck & Co employs 76 thousand people. For 23 years, Fortune magazine has included the company in the Fortune Global 500 - the rating of the largest corporations in the world. Merck was ranked 246th in 2017. The company posted higher-than-expected quarterly profits and improved its full-year outlook amid strong demand for the cancer drug Keytruda during the COVID-19 pandemic. The company said it plans to begin human trials of an experimental coronavirus vaccine acquired through the purchase of Themis Bioscience in the third quarter. Keytruda's quarterly sales rose nearly 29% to $ 3.39 billion, beating the $ 3.13 billion average forecast, according to Refinitiv. The company said it expects annualized earnings in the range of $ 5.63 to $ 5.78 per share, up from the previous forecast of $ 5.17 to $ 5.37. Second-quarter earnings excluding certain balance sheet items were $ 1.37 per share, beating the analyst consensus of $ 1.04 per share, according to IBES data from Refinitiv. Total sales fell 7.6% to $ 10.87 billion, but beat analysts' expectations of $ 10.39 billion. We value Merck & Co's resilience to risks in an unprecedented environment and believe that the company's financial outlook will be appreciated by investors as well, so we have no reason to revoke our Buy recommendation for Merck & Co shares and put our target price under review.
Technical picture of MRK, W1:
American Express is an American diversified financial sector company, the fourth largest payment system in the world. Specializes in financial services in the field of travel and tourism, issues credit and payment cards, travelers checks. American Express approached the crisis with a strong position in terms of capital adequacy and liquidity. The company has transferred employees to remote work, has adopted a number of programs to financially support clients in the consumer sector and in the segment of small businesses. We expect the company to overcome the current crisis with reasonable losses, retaining its staff and customer base, and be able to show a quick recovery from the victory over the coronavirus. American Express shares look inexpensive in terms of financial multiples, they look good in terms of technical analysis. We view American Express as still attractive after a strong decline earlier this year and recommend it as a Buy with a medium-term target of $ 110.
Technical picture of AXP, W1:
Bank of america
Bank of America, Bank of America, Bank of America is an American financial conglomerate that provides a wide range of financial services to individuals and legal entities. It is one of the four largest US banks, along with Citigroup, Wells Fargo and JPMorgan Chase. Net income of the second-largest US bank in the second quarter of 2020 fell 52%, or 2.1 times, to $ 3.5 billion, or $ 0.37 per share, compared to $ 7.3 billion, or $ 0.74 per share, for the same period last year. According to a BofA press release, BofA's quarterly revenues fell 3.5% to $ 22.3 billion from $ 23.1 billion a year earlier. Financial performance declined on the back of an increase in loan loss provisions, but turned out to be better than market forecasts. Experts on average predicted the bank's net profit at $ 0.28 per share on revenue of $ 21.8 billion. The volume of provisions for covering possible losses on loans increased by $ 4 billion, mainly due to the worsening economic outlook due to the coronavirus pandemic COVID-19, the message says. Net interest income of BofA in the second quarter decreased by 11%, to $ 10.85 billion from $ 12.19 billion a year earlier. Non-interest income rose 5% to $ 11.48 billion from $ 10.9 billion. BofA's trading revenues rose 28% to $ 4.2 billion. At the same time, revenue from operations in fixed income assets, commodities and currencies jumped by 50%, to $ 3.2 billion, while earnings from operations with shares increased by 7%, to $ 1.2 billion. In general, excluding one-off factors in the form of accrual of provisions for credit losses, BAC showed solid results. It looks pretty strong against the background of many other banks. Thanks to the presence of diversified sources of profit in the form of asset management, as well as investment banking in terms of market transactions, the bank has demonstrated the ability to show decent results in a recession. At the same time, the potential for growth in the bank's reserves is significant, including due to the high concentration on loans to individuals, accounting for 44% of the total loan portfolio. The target price for BAC shares in the base case is $ 27.1, at the moment this security looks undervalued. The bank has a solid capital reserve to cover losses, as well as the ability to continue to pay dividends. We believe the company's shares are worth holding. Over the next two quarters, quotes will continue to demonstrate increased volatility, however, the strong business model of Bank of America Corporation will remain one of the factors of its investment attractiveness.
Technical picture BAC, W1:
Honeywell is an American corporation that manufactures electronic control and automation systems. The main directions are aerospace equipment, technologies for the operation of buildings and industrial structures, automotive equipment, turbochargers. Founded in 1906 in Minneapolis. US industrial conglomerate Honeywell International released its second quarter financials, with above-average earnings on lower costs and increased demand for automated equipment. According to the company's report, net income fell from $ 1.54 billion or $ 2.10 per share a year earlier to $ 1.08 billion or $ 1.53 per share, and adjusted earnings were at $ 1.26 per share, which is 5 cents above the average. analysts' expectations. Total revenue in the period under review decreased by 19% y / y and to $ 7.48 billion against $ 7.29 billion expected by analysts. The largest losses were incurred by the aerospace division, whose revenue fell by 28% y / y to $ 2.54 billion. Honeywell's diversified portfolio makes it a leader in many industries, including construction, aerospace and the military-industrial complex. With its strong balance sheet, low operational risks and the ability to generate cash flows, the company's sustainable competitive advantage is so great that its global dominance is hard to challenge. We believe that the combination of diversified operations, large number of orders and length of financial cycles will allow Honeywell to perform better than the market, which means that its stock remains attractive for investments. We recommend buying with a medium-term target of $ 167.
Technical picture of HON, W1:
Chevron is one of the world's largest energy companies. The main lines of business of the company are "Extraction of crude oil and natural gas" and "Refining and sale of petroleum products". Chevron produces oil and gas in various regions of the world and operates in more than 180 countries. According to the study, Chevron's proven oil reserves at the end of 2019 are more than 11.5 billion barrels, more than 3 million barrels of oil are produced daily. In addition, the oil company owns an extensive network of gas stations around the world and facilities in the alternative energy sector. The company also deals with cash management and financing, insurance and real estate transactions. The energy sector, faced with low oil prices and one of the worst demand collapses in recent history, is trying to overcome this recession by cutting costs and, in some cases, cutting dividends. Exxon (in its Q2 2020 reports disclosed the magnitude of the damage caused by the fall in energy demand amid the pandemic. Chevron lost $ 8.3 billion in Q2, which has not been seen since 1998. By comparison, the company's profit for the same period last The company posted earnings per share of $ -4.44 and revenues of $ 15.93B. Analysts predicted earnings per share of $ -0.89 and total earnings of $ 21, $ 71B This year, Chevron's share price fell 28%, performing worse than the S&P Global 100 average, rising 1% YTD. On the other hand, Chevron continues to maintain a low debt ratio.constituting 13.75%, while the industry average is more than 35%, which, in turn, speaks of the financial stability of the company, the analytical note says: “The Debt / EBITDA ratio is 0.76 (compared to 1.18 from the main competitor - Exxon Mobil)". At the end of 2020, Chevron may record a loss of $ 1 billion, however, in our opinion , the issuer's stable financial position will help it overcome current diff iculties: "In the first quarter, cash flow from operating period activities to $ 4.7 billion, free cash flow - $ 1.62 billion, and cash and cash equivalents in the reporting - $ 8.49 billion compared to $ 5.686 billion a year earlier. "In addition, Chevron will continue to pay $ 1.29 in dividends. It is worth noting that the company's dividend yield is currently 5.6%, while the S&P 500 has a 2% dividend yield. Chevron shares are overvalued at key multiples, reflecting the company's leading position in the industry.Nevertheless, in terms of EV / S and EV / EBITDA, Chevron retains upside potential of at least 25% and 3%, respectively.
Technical picture CVX, W1: