Part 2

Throughout the last 5 months the stock market has been in one of the strongest and most rapid bull trends ever with new all-time highs reached on all major US indices. The coronavirus pandemic has continued to bring high levels of uncertainty among traders and investors, but most of that negativity has been shut out by people’s greed of generating high returns by joining the rally. Thus, we believe that the most recent market correction will allow investors to reposition themselves and push the best stocks to higher levels in the near future.

After analyzing the performance of the ETF pair, we have picked the two best stocks from each ETF that we believe are expected to have the highest chance of beating the market in the current environment.

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

Alphabet Inc. (GOOGL)

Company Background

Alphabet is one of the most innovative companies in the modern technological age. Over the last few years, the company has evolved from primarily being a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. The versatile portfolio of products and service that the company now offers, provides a great diversification to Alphabet’s revenue streams and is an outstanding long-term growth driver.

In the online search arena, Google is not only the largest search-engine in the world, but it is basically a monopoly with more than 94% of the online search volume and market. Over the years, the company has witnessed an increase in search queries, resulting from ongoing growth in user adoption and usage, primarily on mobile devices, continued growth in advertiser activity, and improvements in ad formats.

A couple of years ago, the company decided to enter the fast-growing and also very lucrative cloud market and thanks to its large client base of Google Cloud Platform and G Suite offerings, Alphabet has been consistently gaining market share in the cloud-computing world.

Alphabet also enjoys a dominant position in the autonomous vehicles market, thanks to Waymo’s relentless efforts. Also, it has bolstered its footprint in the healthcare industry with its life science divison, Verily.

The company has also become a renowned name in the world of entertainment. YouTube came up with $15.15 billion advertising revenues in 2019.

The parent company of Google, Alphabet Inc. has continued to grow at a tremendous rate throughout the last decade and as a result of that managed to join the “prestigious” $1 trillion market cap club in the beginning of 2020, thus 2020 becoming the fourth corporation to reach this historical mark, after Apple, Amazon and Microsoft.


Google Inc. decided to reinvent the way investors see the company and diversify its operations back in 2015 and this was an important step for the future growth prospects of the company. With Google’s evolution into Alphabet Inc. now the company is much more than just the largest search-engine in the world. Alphabet Inc. is a multi-national technological conglomerate with 8 separate companies operating in 4 different industries: Robotics, Life sciences, Healthcare and Anti-aging. In addition to significantly expanding its operations with this evolutionary step, this was also a very smart move for Google (now Alphabet) from a regulatory standpoint, because now Alphabet as a conglomerate could argue that every single one of the 8 companies under its umbrella is working in a separate field and industry, thus eliminating all possible future conflict of interest or monopoly allegations.

Current Position – Financial Performance and Future Growth Prospects

Alphabet Inc.’s non-GAAP earnings of $10.13 per share for second-quarter 2020 surpassed the street’s consensus estimate of $8.43. Earnings increased 2.6% sequentially but decreased 28.7% year over year. This was the first time in the company’s history when revenues beat expectations but declined year-over-year. Traffic acquisition costs exceeded estimates coming in at $6.69 billion vs. $6.67 billion expected. Rising or high traffic acquisition costs indicates lower margins and profits.

Net revenues — excluding total traffic acquisition cost or TAC (TAC is the portion of revenues shared with Google’s partners, and amounts paid to distribution partners and others who direct traffic to the Google website) — came in at $31.60 billion. The figure was down 6.2% sequentially and 0.3% year over year. The decrease in advertising revenues was due to the coronavirus pandemic, which in turn resulted in a decline in consumer and business spending. However, CFO Ruth Porat said on the earnings call that consumers returned to more “commercial” search queries toward the end of the quarter, and advertisers began increasing their search spending, so search revenue ended the quarter about even from last year. Alphabet CEO Sundar Pichai further said that Google would be pulling back on some of its investments for the rest of the year amid the Covid-19 crisis, starting with hiring.

Analysts also peppered execs with question about future growth opportunities, given the slowdown in advertising growth. Pichai briefly pointed to newer businesses he sees longterm growth in such as cloud computing and artificial intelligence, as well as YouTube and shopping.

One of the new spaces where Alphabet has been showing increased appetite for is the Home Assistant space. The company took its first steps into this market back in 2016 with the launch of Google Home. Google Home performs an array of tasks such as playing music, reading books, managing calendars, answering queries, searching places, calling over cabs, controlling smart home devices and so on. It runs on Google’s new voice assistant. As voice is being seen as the next big thing in computer interaction, these products could help Google expand its revenue going forward. As per Gartner, 3.3% of global households are expected to adopt a VPA-enabled wireless speaker by 2020. The strong growth projection for the personal assistant market is a key growth catalyst for Google. As a booming future is being predicted for the home assistant market, Google’s home assistant devices could quite well add to their top and bottom-line figures going forward.

Google has also wanted to enter the wearable technological space for years now and it is in the process of accomplishing this task as it has entered into a definitive agreement to acquire the wearable fitness company Fitbit for roughly $2.1 billion. The move ramps up competition in the wearables space. Google has substantially invested in artificial intelligence. Fitbit, with 28 million users worldwide, is likely to be a very good fit for Google. Also, the Fitbit acquisition gives Google a bridge to the $3 trillion health care market. The buyout expands Google’s presence in the lucrative health care market, as it can provide valuable insights to medical professionals about broader health trends.

Online and mobile video consumption is soaring and Alphabet remains strongly positioned here with the YouTube platform. In its race to target TV ad dollars, Alphabet allowed third-party (Nielsen and comScore) tagging of YouTube videos to determine the effectiveness of ads on YouTube versus ads shown on TV. The Google Preferred program pulls out the top 5% of the most engaging content on YouTube for advertisers. Alphabet has also promised to advertise this content itself in order to boost traffic. So Google Preferred is attracting spending on the platform. Mobile revenue on YouTube continues to grow and TrueView (where advertisers pay only when consumers see the ad) also continues to do well.

Technical analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 5 months taking the price from the March 17th lows of around $1,050 to the $1,720 all-time highs in the beginning of September. Since then, we have seen a volatile correction that has taken the price down with over 11% in less than 2 weeks. The stock is currently sitting at the $1,515 mark testing the strong horizontal and psychological support at $1,500, which is right above the 100 DMA dynamic support. This correction was anticipated by us as nothing can go up or down in a straight line forever and after the strong bullish rally in the past 5 months it is now more than normal to see this downward corrective movement. While we believe that the stock market in the US is currently holding a lot of intrinsic risks surrounding COVI-19, the upcoming presidential elections, the economic recovery etc. and that we could be in for a sideways and choppy price action in the coming months, which in turn could affect a lot of the stocks negatively, we see the winners counting to win. We remain bullish on the GOOGL stock and believe that all these profit-taking corrections are giving us great opportunities to buy the stock at a good discount, which would in turn give us a chance to maximize our profits to the upside. Moreover, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing exhaustion of the recent correction and are signaling that the uptrend might be resuming very soon.

The daily chart shows that the price is currently testing the first key horizontal support line at $1,500, which is actually further supported by the strong dynamic 100 DMA support sitting at $1,470. Considering the fact that the diagonal uptrend support line was broken around the $1,550 level, we should see the price re-entering the uptrend channel in order to solidify our bullish thesis. If we see the price breaking down below the current $1,500 strong support level, then we could expect the decline to extend towards the next major dynamic support line at $1,470 where lots of buying pressure is expected to occur, thus sending the price back to the all-time highs around $1,700.

We will start buying GOOGL around the first key horizontal support at $1,500. Should the price break that support mark it would be heading towards the next strong support 100 DMA area around the $1,470 level where we will be buying the stock even more aggressively in order to get a better average cost basis on our positions. Our initial profit-taking area is placed at $1,675, followed by the next target at $1,715 where we will be fully cashing out our profits and waiting for another pullback on the stock so we can buy it again at a nice discount.

One of our other top stock-picks from the XLC for the month of September is:

Activision Blizzard Inc. (ATVI)

Company Background

Activision Blizzard, Inc. is an American video game holding company based in Santa Monica, California. The company was founded in July 2008 through the merger of Activision, Inc. (the publicly traded parent company of Activision Publishing) and Vivendi Games. The company is traded on the NASDAQ stock exchange under the ticker symbol ATVI, and since 2015 has been one of the stocks that make up the S&P 500. Activision Blizzard currently includes five business units: Activision Publishing, Blizzard Entertainment, King, Major League Gaming, and Activision Blizzard Studios.

Activision Blizzard, Inc. is a leading developer and publisher of console, online and mobile games with many big-name titles in their product portfolio. The company’s Call of Duty is one of the most popular gaming franchises globally. Its Overwatch League can be considered a pioneer of the esports concept.

The global public health crisis that we have all experienced so far this year and the fact that people have started spending more time at home has led to a substantial increase in the demand for the company’s products. This has further strengthened Activision Blizzard’s long-term growth prospects considering the fact that we believe that this process of digitalization, gamification and esports domination is expected to get even stronger in the coming years. The company has substantially benefited from the shift to digital download format. The company’s policy of updating games all the year round has also increased revenue visibility and stability.

The company has been active on the acquisition front as well acquiring King Digital in 2016, which fortified Activision’s footprint in the mobile genre. King’s Candy Crush was the top-grossing franchise in U.S. app stores during 2019. King operates as an independent unit. The segment generated revenues of $2.03 billion and accounted for 34% of revenues. Activision reported revenues of $6.49 billion in 2019. International revenues accounted for 48.5% of revenues.

The Santa Monica, CA-based company operates under three major segments and incorporates studio, media networks and distribution businesses under the “Others” segment.

Activision creates and publishes games for consoles, desktops, mobile and tablet. Franchises under this segment include Call of Duty, Crash and Spyro. The segment generated revenues of $2.22 billion and accounted for almost 37.2% of 2019 revenues.

Blizzard publishes games particularly for the PC format. It also maintains a proprietary online gaming service, Blizzard Battle.net, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. The Overwatch League comes under this segment. The segment generated revenues of $1.72 billion and accounted for 28.8% of revenues.

The Other division includes Activision Blizzard Studios that makes original film and television content based on the company’s huge IP library. The segment also consists Activision Blizzard Distribution business.

The major competitors of Activision are Electronic Arts, Nintendo, Zynga and Tencent in the video gaming space.

Current Position – Financial Performance and Future Growth Prospects

Activision Blizzard had an absolutely stellar second-quarter 2020 earnings report, blowing all analysts’ expectations out of the water. The company delivered 97 cents earnings per share, which was a 42.65% positive earnings surprise and also represented a 52.8% jump year over year. The company has furthered surprised the street with a 23.12% revenues beat throughout Q2. Product sales (27.6% of revenues) were $533 million, up 48.5% year over year. Subscription, licensing and other revenues (72.4% of revenues) increased 35% to $1.40 billion. Based on distribution channels, Activision Blizzard reported retail-channel sales of $168 million, down 13% year over year. However, digital online revenues of $1.59 billion were up 46.5% from the year-ago quarter. Other revenues improved 48% year over year to $173 million. Further, on the basis of platforms, revenues from mobile and ancillary (32.2% of revenues) rose 21.7% year over year to $622 million. Additionally, PC revenues (24.9% of revenues) jumped 33.5% year over year to $482 million. Moreover, revenues from console (33.9% of revenues) surged 61% year over year to $655 million. Consolidated revenues surged 74.4% year over year to $2 billion. Adjusting for net effect from the recognition of deferred revenues and elimination of intersegment revenues, total revenues jumped 38.4% to $1.93 billion.

For the quarter ended Jun 30, 2020, overall Monthly Active Users (MAUs) were 428 million compared with 327 million as of Jun 30, 2019. Activision Blizzard’s net bookings increased 72.2% year over year to $2.08 billion. Net bookings from digital channels were $1.82 billion, up 80.2% year over year. Notably, in-game net bookings were $1.37 billion, up 76.6% year over year.

Activision popularity is primarily driven by its well-known franchises, which will continue to fuel top-line growth. Call of Duty is one of the biggest growth drivers for the company. The game has been the top-selling console franchise for Activision in 10 of the last 11 years. The latest title, Call of Duty: Modern Warfare has sold more units than Call of Duty: Black Ops 4. Activision stated that it will make frequent content updates to Call of Duty and expand the franchise’s presence across platforms and geographies. Call of Duty: Warzone was launched on Mar 10, 2020 and the update has attracted more than 75 million players to date. Call of Duty Mobile, launched in October 2019, continues to play an important part in driving user base. The success of World of Warcraft Classic also indicates an expanding portfolio, which will benefit the company’s top line in the long haul.

Compared with the physical platform, digital games are more profitable due to minimum packaging cost. This cost effectiveness will help publishers to use the digital format to keep a popular franchise running profitably over a longer period of time. Notably, Digital revenues contributed 76% of total revenues in 2019. Additionally, Activision has been trying to adopt an all year-round model instead of a launch-based model in which majority earnings and profits are derived in the first week to boost engagement. This bodes well for long-term performance.

Technical analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 5 months taking the price from the March 17th lows of around $51 to the $87 all-time highs in the beginning of September. Since then, we have seen a volatile correction that has taken the price down with over 10% in less than 2 weeks. The stock is currently sitting at the $78 mark approaching the strong horizontal and psychological support at $75, and the 100 DMA dynamic support, which currently lies around the $76.50 level. This correction was anticipated by us as nothing can go up or down in a straight line forever and after the strong bullish rally in the past 5 months it is now more than normal to see this downward corrective movement. While we believe that the stock market in the US is currently holding a lot of intrinsic risks surrounding COVI-19, the upcoming presidential elections, the economic recovery etc. and that we could be in for a sideways and choppy price action in the coming months, which in turn could affect a lot of the stocks negatively, we see that the winners will most likely continue to win. We remain bullish on the ATVI stock and believe that all these profit-taking corrections are giving us great opportunities to buy the stock at a good discount, which would in turn give us a chance to maximize our profits to the upside. Moreover, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing exhaustion of the recent correction and are signaling that the uptrend might be resuming very soon.

The daily chart shows that the price is currently testing the first key horizontal support line at $75, which is actually further supported by the strong dynamic 100 DMA support sitting at $76.5. Considering the fact that the diagonal uptrend support line was broken around the $83 level, and that the price is also trading below its 20 DMA and the 50 DMA we should see the price regaining at least the 50 DMA in order to fully confirm the resumption of the uptrend. If we see the price breaking down below the current $75 strong support level, then we could expect the decline to extend towards the next major horizontal support line at $68 where lots of buying pressure is expected to occur, thus sending the price back to the all-time highs around $87.

We will start buying ATVI around the first key dynamic 100DMA support at $77. Should the price break that support mark it would be heading towards the next strong horizontal support area around $70 where we will be buying the stock even more aggressively in order to get a better average cost basis on our positions. Our initial profit-taking area is placed at $85, followed by the next target at $90 where we will be fully cashing out our profits and waiting for another pullback on the stock so we can buy it again at a nice discount.

We at Dow Experts enjoy analyzing the market and helping our followers maximize their profitability by following our trading and investing ideas, which are always supported by our rational investment approach.

In order to further provide our followers with a strategy on how to fully capitalize on the above-described patterns and correlations, we analyzed the performance of some of the biggest companies within the SPY and XLC that have a big impact on the overall performance of the two ETFs.

You can subscribe to our Full Package in order to receive all of our top stock and ETF picks and analyses for the month plus new Bonus reports every month!

Sincerely,

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