Part 1

Last month, we saw the strongest market rally since 1987, which is now giving investors a great opportunity to collect some profits and wait for better market prices in the coming weeks in order to re-open their long-term buying positions.

As usual after we complete our ETF Correlation Analysis we pick the two best stocks in each ETF that have the highest probability of beating the market in the current environment.

One of our top-stock picks from the SPY for the month of May is:

Walmart (WMT).

Company background

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 other products. Furthermore, the company offers its products at very affordable prices, suitable for all sorts of customers.

Current positioning- COVID-19 and Financial performance

It is important to say that during the current pandemic crisis, Walmart has actually been one of the best performing companies out there due to the fact that customers are even more cautious what to spend their hard-earned money for and therefore concentrate mainly on basic necessities for their day-to-day life, while Walmart has got it all offered at the same place.

Walmart’s success in the sector it operates has been exceptional. In fact, it has become the world’s largest company by revenue with its $524 billion for the fiscal year ending in the end of January 2020.

Technical Analysis

By looking at the daily chart of the stock, we should say that Walmart was one of the companies that lost the least of their market capitalization during the sell-off caused by the coronavirus outbreak. In other words, Walmart’s stock dropped only 15% from $120 to $102 in the period between the 20th of February and the 20th of March when the stock market crashed and lots of the biggest companies out there lost 35-40% of their market value. Thus, this was a clear signal that the company has got a rock-solid market positioning and the basic necessity products it offers at affordable prices helps it survive even during the most severe crises out there. Logically speaking, a huge bullish rally followed after the stock hit the lows at $102. Investors saw this profit-taking correction as a great buying opportunity, which gives them a chance to buy the stock and own the biggest revenue generating company in the world at a 15% discount. There was a huge bullish effect on the price immediately that sent the stock towards the new all-time highs at $133 and breaking more records to the upside even during the current pandemic crisis. Investors then took some profits at the $133 highs and that led to a profit-taking correction towards the $123 lows. Yet, the downside potential seems very limited with the price currently testing the key support mark at $120, which led to lots of buying pressure as soon as the price tested that level at the end of last week and failed to break it to the downside. Furthermore, the technical indicators, such as RSI and Stochastics have gone to the oversold territories and are already crossing up, while the 38.20% Fibonacci retracement level stays exactly at the key support line at $120, giving further bullish indications and a signal for a very likely bullish reversal from those levels.

Therefore, we believe the recent profit-taking correction is giving us a great opportunity to buy Walmart and add it to our investment portfolio and expect further bullish rallies in the short to middle term that would maximize our followers’ profits to the upside.

The company is expected to report its Q1 financial statements on the 19th of May and it is expected to deliver an earnings per share (EPS) of $1.16, while it reported $1.16 per share in the 3rd quarter of 2019, followed by an increase to $1.38 per share in the 4th quarter ending in the end of January 2020. Walmart is likely to report a solid financial performance again even during the current pandemic crisis, which would be very bullish for the stock in the next few weeks.

Chart: Walmart Inc.

We will start buying Walmart stock aggressively around the key support at $120-$121. In case of a further short-term correction on the price, we would be adding more to our buy positions at the next strong support mark at $114.

In terms of taking profit, our first goal is set at $130-$131, followed by the next target at $142-$145 where we will be fully closing our positions and cashing the profit. We will then be looking for further profit-taking corrections that would give us a chance to buy the stock at a discount again and make more money to the upside.

One of our top-stock picks from the XLY for the month of May is:

Starbucks Corporation (SBUX)

Company Background

Founded in 1971 in the US, Starbucks has become the largest coffee house in the world. The company operates 30,000 locations in 77 countries around the world and especially over the past decade has managed to create a very well known brand, globally famous as the “third-place” where the company is committed to creating a culture of warmth and belonging where everyone is welcome.

Starbucks is among XLY’s biggest holdings with its 4.25% weight within the ETF.

Current position – Financial Performance & Technical Analysis

The company’s financial performance has been very solid over the past few years and we have been following closely its quarterly earnings reports where SBUX has been beating analysts’ expectations every single quarter in a row since the beginning of 2018, without a single worst than expected earnings per share (EPS) figure. That of course has been extremely positive for its overall share price performance and we have been taking advantage of a few great bullish movements on the stock ever since.

By looking at the latest quarter’s results, we shall say that the company beat both revenue and earnings expectations and its financial performance has not really seen any significant hit during the coronavirus pandemic. The earnings per share came out at $0.32, while analysts had expected $0.31 (3.23% better than expected).
The daily chart shows the huge sell-off that occurred when the coronavirus started spreading all across the globe, dragging the whole stock market significantly lower and causing huge corrections. SBUX stock dropped from $90 to $50 in 4 weeks following the large market correction during that period of time where the leading coffee maker lost 44% of its value. Yet, since then we have seen it make a huge bullish recovery where investors have been taking the opportunity of buying this great stock at such a huge correction, which led to a massive appreciation towards the $79.60 highs (59%) a week ago.

Currently, the price is making a bit of a profit-taking correction to the downside and has already gone towards the current levels at $72.90. Yet, the daily chart clearly shows the key support mark standing at $71.50, which has been causing lots of buying pressure in the past and is likely to lead to a bullish reversal from those levels again. The 50-day moving average is standing exactly at that level as well, giving further bullish indications. Moreover, the Stochastics indicator has almost gone to the oversold territory and will be signaling for a potential bullish reversal from that level very soon. We remain bullish on Starbucks for the short to middle term and will be interested in adding the stock to our portfolio.

Chart: Starbucks Corporation

We will start buying SBUX at the $72, just above the key support line at $71.50.
In case of a further depreciation on the price, we will be interested in adding more to our long positions at the next key support mark at $67-$68.

Our first profit target would be at $79, followed by the longer term target at $90-$95 where we will be fully cashing in profits and waiting for another correction on the price in order to buy SBUX again at a discount and maximize our followers’ profits to the upside.

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Kind regards,

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