Part 2

Citigroup Inc. (C)

Our next stock pick from the XLF for April is Citigroup Inc. (C)

Company background and financial performance

Citigroup is the 3rd largest financial institution in the US and it is part of the Big Four banks together with JPMorgan Chase, Wells Fargo and Bank of America. The bank offers multiple financial services, including consumer banking and credit, corporate and investment banking, securities, as well as securities and wealth management. Citigroup has been a global leader in the sector for many years now and it has got around 200 million customers worldwide, operating in 160 countries around the world.

The company has kept on delivering great financial results over the past few years. In other words, the revenues and profits have been rising steadily, boosted by the economic growth in the US and globally. In fact, the leading bank managed to report strong financial statements and beat analysts’ earnings expectations in the past few quarters, performing well even during the coronavirus pandemic and the economic slowdown that followed. As a matter of fact, due to its strong financial performance, CITI managed to beat analysts’ expectations in all 4 quarters of 2020, which has been a huge driver for its bullish stock price performance afterwards.

Citigroup’s 3rd quarter 2020 financial results were extremely impressive – the company delivered almost 40% better earnings than analysts had expected. Following the strong report, the share price of the company rose 50% from the $40 lows to the $60 highs in 5 weeks between the end of October and the beginning of December. Furthermore, CITI delivered very strong financial results for the 4th quarter that ended in December 2020, reporting earnings of $2.07 per share, while analysts had estimated only $1.35 (53%).

Overall, CITI’s revenues are expected to further increase in the future based on the expectations for the economy going back to normal where individuals and corporations would be interested in borrowing more money to finance their operations. Moreover, CITI’s management has been able to keep their debt relatively low, making it less likely to default on its interest and debt repayment obligations in case of a further economic slowdown.

Moreover, the company has indicated that it would be interested in share buybacks again in 2021, which would be even more bullish for its share price performance in the future. Share buybacks are an extremely favourable and profitable way of returning back money to shareholders, which then increases their wealth and more investors would be interested in buying the stock in the future.

Citigroup is expected to deliver its Q1 financial results on the 15th of April and the earnings expectations are for $2.17 per share, while it delivered $1.06 per share in the same quarter of last year. As we mentioned earlier, the company has been delivering great financial results even during the heavy times during the pandemic in the past year. So, there is no reason to believe that it would not deliver strong financial results again for this quarter. Any result better than the expected would be seen as very bullish for the stock and we would expect to see a strong upside movement on CITI stock after the report.


Technical analysis

Citigroup stock has been in a massive uptrend and we have seen it break a few key resistance levels to the upside especially in the past few months. In fact, the price bounced from the strong support at $40 in the beginning of November, broke the first major resistance at $48-$50, followed by the next strong resistances at $68 and $70 to reach the current levels at $72. In fact, the price has been consolidating above that support (broken resistance) at $72 for about a week already and it is struggling to go lower, boosted by lots of buying interest ahead of the earnings report coming out in the middle of April.
In other words, the stock has already risen from $58 to $72 since the end of January and most of that rally has been based on investors and traders’ positive expectations for the upcoming quarterly results, which in case better than expected could drive the stock even higher in the future.
In fact, the 50-day moving average is standing right below the support at $72, while the horizontal support matches with the diagonal support at that point, all giving lots of bullish indications. The lower Bollinger band also matches with the support at that point, giving further buying signals. Even if the price breaks the first support ahead of the earnings report, we would expect to see more buying pressure at the next major support mark at $68 where more buying interest is likely to occur. Overall, based on the strong financial as well as stock price performance of the company, we have decided to add CITI stock to our portfolio and make high profits to the upside in case of a better than expected result in mid-April.


Chart: Citigroup

We will start buying the stock at the first key support at $72. In case the price breaks the first major support and drops further in the short-term we would be interested in adding more to our buy positions at the next strong support mark at $68 that would give us a chance to get a better average price on our long positions and further maximize our profitability to the upside. Our initial profit-taking target will be at $80-$82, followed by the next target at $87-$92 where we would be fully cashing in our profits.




Nike Inc. (NKE)

Our next stock pick from the XLY is Nike Inc. (NKE)

Company background and financial performance

Founded in 1964 in the US, Nike Inc. (NKE) is a global leader in the business of designing, developing, manufacturing, as well as selling footwear, equipment, apparel and other accessories for men, women and children. In fact, Nike is the largest seller of athletic shoes and apparel and sports equipment in the world. In 2020 right during the COVID-19 pandemic, Nike’s brand was valued at over $32 billion, making it the most valuable brand in the sports business.

Nike has seen a decrease in sales in the past year due to the coronavirus pandemic, which was quite logical taking into account the lockdown and the economic slowdown that followed.

Thus, Nike’s wholesale business and its stores have seen lower revenues across all regions, expect for the Greater China. Yet, the company still managed to report better than expected earnings results in the past few quarters, beating analysts’ expectations. In fact, Nike’s digital sales have been quite a success during the pandemic and the company has been benefiting from customers purchasing online, which helped Nike deliver quite solid results during the pandemic.

By taking into account the fact that the vaccines have already been used around the globe, we believe the situation with the pandemic should improve in the next few months and that would lead to lifting the lockdown and reopening stores and shopping malls, which would bring customers back to the stores and increase their purchasing activity that in turn would boost Nike’s revenues in the near future.

By looking at the last quarter’s earnings result we shall say the company beat earnings in Q3, Q4 for 2020 as well as the Q1 2021 expectations. The Q1 results came out in March where Nike reported $0.90 per share versus the $0.75 expected by analysts. Moreover, the result came out a lot better than last year’s Q1 result, which was for only $0.53 per share. In other words, the company’s overall financial performance has improved in the past 12 months and that is a strong indication for a decent financial performance and more earnings beats in the next few quarters, which would drive the share price higher and we would be able to take advantage of buying the stock and making high profits to the upside.


Technical analysis


By looking at Nike’s share price performance, we should say the stock has been in a massive uptrend since March last year. The stock bounced from the lows at $60 to reach the $146 highs in January. In fact, the price has been struggling to break that key resistance at $147 for 3 consecutive months now, leading to a profit-taking correction towards the major support at $130-$131. Actually, the price has been consolidating between the $146 resistance and the $131 support since the end of January. The daily chart shows that the price has been bouncing from the key support at $131 every time it tested that level ever since. In other words, there tends to be a lot of buying pressure at that point and bulls are not allowing the price to drop further by buying actively at that point. Thus, the price has already bounced from that level to reach the current $137. The main reason for the current bullish reaction on the price is the strong Q1 financial results that the company has recently reported and that’s the main driver for the price appreciation at the moment. We believe there is more money to be made to the upside from the current levels. The price is still trading at a correction from the $147 highs and we would be interested in buying the stock and maximize our profitability on the way up.

The lower Bollinger band matches with the strong support at $131, while the Stochastics and RSI indicators have already started heading upwards, all giving further bullish indications. We would wait for a short-term drop on the price that would give us a chance to buy Nike stock around the strong support at $131 and make high profits to the upside.

Chart: NIKE

We will wait for a little short-term correction on the stock and start buying around $133-$134, just above the strong support at $131 where lots of buying pressure is expected to take place. Should the price drop further in the short-term we would be adding more to our buy positions at the next strong support mark at $125 where more buying interest is likely to occur and it would give us a chance to get a better average price on the stock and make high profits to the upside. Our initial profit-taking target would be at $142-$145, followed by the next target at $157-$160 where we would be fully cashing in our profits.




Sincerely,

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