Part 1

Amazon Inc. (AMZN)

Our first stock pick from the XLY for March is Amazon Inc.

Company background and financial performance

Amazon Inc. (AMZN) was among the best performing stocks during the coronavirus pandemic. The company has shown a continuous growth in its customers’ online purchasing power and that has led to the stock breaking new records and reaching new all-time highs in 2020 after the coronavirus correction that occurred between the end of February and the end of March last year.

Amazon Inc. is one of the largest e-commerce providers, headquartered in the US and providing its services across the globe. The company’s online retail business is presented through its Prime program, which is well supported by its massive distribution network. Furthermore, Amazon’s $13.7 billion acquisition deal of the well-known supermarket chain Whole Foods back in 2017 helped the company establish its footprint in the physical grocery supermarket space.

Moreover, Amazon enjoys its current dominant position in the cloud-computing market, particularly in its infrastructure segment, thanks to its Amazon Web Services (AWS), which is one of the company’s high-margin generating businesses. Amazon has also seen its Alexa echo devices perform quite well – a product backed by Artificial Intelligence that is also helping the company sell its products and services even more effectively.

When analyzing Amazon, we shall say we analyze one of the biggest and most successful companies in the world that has kept on growing and maintaining its presence in the market for a long time now. Amazon plays an important role in both the XLY (22.38%) and the SPY (2.90%).

Amazon’s presence on the market is extraordinary and the company managed to further prove that during the economic slowdown caused by the coronavirus in the past year. Moreover, the company was actually one of the biggest winners during the pandemic times due to the lockdown. In fact, people spent and keep spending more time at home and since the shopping malls and other stores are closed, customers buy more products from Amazon. That was the main reason the company performed so well in the past 12 months and delivered very strong financial results in the 2nd, 3rd and 4th quarter of 2020. What’s worth noting is that Amazon delivered earnings of $14 per share in the Q4 2020, while the expectations by analysts were for only $7 a share. In other words, the company has been performing great in the last 3 months of 2020 and further confirmed our bullish expectations on the stock for the future.

The first quarter of 2021 is coming to its end in a few weeks and all publicly traded companies are expected to start delivering their financial reports for the Q1 in April. Amazon is expected to report on the 29th of April and analysts have estimated earnings of $9.89 per share for the first 3 months of 2021. Following the great performance of the company in the past few years especially and the great market positioning and stock price performance, we remain bullish on the stock and believe any potential correction in the short-term would be giving us a great opportunity to buy the stock at a nice discount and a strong support mark and make high profits to the upside.


Technical analysis

By looking at the daily chart, one could see that after the strong bullish rally that occurred between the beginning of January this year, starting from the strong support mark at $3080, the price bounced supported by lots of buying interest, leading to a massive rally towards the $3430 highs where it faced a strong resistance mark and failed to break it to the upside. Therefore, investors and traders started taking profits around those levels in the first week of February and that led to a massive profit-taking correction towards the $2900 lows. Yet, the price faced the strong support mark at the $2900 and failed to break it to the downside. The reason for that was because market participants are fully aware of the great financial performance and market positioning of the company and have been seeing that correction as a great buying opportunity at a strong support mark. Logically speaking, the price started rising immediately from those levels based on lots of bullish interest to reach the current $3050-$3060 where it is facing a strong resistance level and some short-term profit taking correction is possible to take place.

However, we believe any potential profit taking interest at that resistance could send the price closer to the strong support at $2900-$2920 where we would definitely be interested in buying the stock and adding it to our portfolio ahead of the Q1 earnings results next month. The technical indicators have already started bouncing from the oversold territory and giving further bullish indications.


Chart: AMZN

We will wait for a short-term correction on the stock and start buying at around $2950-$2960, above the first key support at $2920-$2900. In case the price drops further below that support, we would be interested in adding more to our buy positions at the next key support at $2700, which would give us a chance to get a better average price for our long positions. Our initial profit-taking target is set at $3150-$3200, followed by the next target at $3400-$3500 where we would be fully cashing in our profits.


Our first stock pick from the SPY this month would be Walmart Inc. (WMT).

Walmart Inc. (WMT)

Company background and financial performance

Founded back in 1962 by Sam Walton, Walmart Inc. is an American multinational retail corporation, operating a chain of hypermarkets, grocery stores and discount department stores. The company employs 2.2 million people and has got 11,503 stores in 27 countries around the globe, operating under 56 different names. Walmart’s business model has been extremely successful due to the fact that it offers all sorts of different products customers need, gathered at one place – electronics, home & furniture appliances, home improvement, movies, music & books, baby toys and games, as well as food, household necessities, together with pharmaceutical products, health & personal care, sports and many others. Moreover, the company offers its products at very affordable prices, suitable for all sorts of customers.

It is quite important to mention that during the current pandemic times, Walmart has actually been among the best performing companies out there. That has been driven by the fact that customers have been even more cautious what to spend their hard-earned money for and have therefore been concentrating on buying mainly basic necessities for their day-to-day life, which Walmart has got it all offered at the same place.

Walmart’s success in the sector it operates has been exceptional. Thus, the company has become the world’s largest corporation by revenue with its $524 billion for the fiscal year ending in the end of January last year.

The company managed to beat expectations in the past 4 quarters in 2020. For the Q4 Walmart delivered earnings of $1.34 per share while the expectations were for $1.19. In other words, it did a great job and beat analysts’ expectations, further confirming its great presence in the market even during the tough pandemic times we have been living in the past 12 months.


Technical analysis

By looking at the daily chart, we can see the massive uptrend the stock had been trading in between March and December 2020. In fact, the price bottomed out from the lows at $100 lows to reach the $150 highs 9 months later. In other words, the stock rose 50% during that period of time, driven by lots of buying pressure based on the company’s strong market positioning and great financial performance even during the pandemic times. Since December though, we have seen the price in a consolidative mode where the stock has seen quite a lot of profit-taking interest among investors and traders who have been cashing in profits quite expectedly after such a bullish rally to the upside last year. Therefore, the price is currently trading at around the $132 after bouncing from the key support at $126 in the first week of March. Actually, the $126 is a massive support level that has been bringing lots of buying pressure in the past. In other words, the price tested that support back in August, failed to break it, leading to a massive buying activity taking place at that point, followed by a strong bullish reaction that sent the price to the $150 highs in December.
Based on the current correction that is giving us a chance to own that great stock at a massive discount and the company’s strong financial positioning, we will be looking to add Walmart stock to our portfolio.
We believe the $126 support would bring a lot more buying pressure once the price gets closer to that point again. The technical indicators have already crossed up and started heading higher from the oversold territory and are giving additional buying indications.


Chart: WMT

We would wait for a short-term pullback on the stock and start buying at around $128, just above the strong support at $126. Should the price drop further, we would be adding more to our long positions around the next strong support at $116-$117. Our initial profit-taking target would be set at $140, followed by the next target at $152-$160 where we would be fully cashing in our profits and waiting for another correction that would give us a chance to buy again at a strong support.




Sincerely,

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