Part 3

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 top stock-picks from the XLK for the month of September is:

Salesforce Inc. (CRM)

The company was founded back in 1999 and it’s headquartered in San Francisco, CA. Salesforce.com has established itself as the worldwide leading provider of on-demand Customer Relationship Management (CRM) software with the remarkable 20% market share. Its nearest rival, SAP is way behind at a market share of around 8%. About 90% of the Fortune 100 companies uses at least one Salesforce software. The company’s products and services enable organizations to better manage critical operations, such as sales force automation, customer service and support, marketing automation, document management, analytics and custom application development.

The company has leveraged its expertise in on-demand software to increase its scale of operations. It also offers a technology platform for customers and developers to build and run a variety of business applications.

The reason why Salesforce is uniquely positioned to continue growing in the future is associated with the fact that the company solves a very important problem that organizations of all sizes are facing on a daily basis all over the world – the communication with their clients. Salesforce helps companies of every size and industry to connect with their customers in new ways through existing and emerging technologies including cloud, mobile, social, IoT and artificial intelligence (AI).

Rapid digital transformation and the company’s sustained focus on introducing more aligned products as per customer needs is driving its revenues higher. Over the last five years, Salesforce’s annual revenues have tripled from $5.4 billion in fiscal 2015 to $17.1 billion in fiscal 2020.

The two main revenue streams for the company are: Subscription and Support and Professional Services & Other.

Subscription revenues are the largest revenue generator for Salesforce as they include subscription fees from customers, accessing the company’s enterprise cloud computing services (Cloud Services), software licenses and subscription fees recognized from customers for additional support beyond the standard support lent by the company. This segment accounted for more than 94% of Salesforce’s fiscal 2020 revenues.

Professional Services & Other revenues consist of fees that the company derives from consulting and implementation services and training. This segment accounted for the remaining 6% of Salesforce’s fiscal 2020 revenues.

Current Position – Financial Performance and Future Growth Prospects

The company dominates the market owing to its strong clientele. Per IDC’s Worldwide Semiannual Software Tracker, salesforce remained the #1 CRM providers for the seventh straight year, demonstrating the attractiveness of its cloud-based solutions. The company cemented its overall market share position and inflated its revenue base more than any other CRM vendor, the firm added. Management intends to double the company’s top line by fiscal year 2024 with a revenue target of $34-$35 billion, thus making it the fastest enterprise software entity to attain that milestone.

Salesforce is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions is driving demand for its products. Salesforce’s sustained focus on introducing more aligned products as per customer needs is driving its top-line. Continued deal wins in the international market is another growth driver. Furthermore, the recent acquisition of Tableau positions the company to be a leader in business analytics for actionable results in everything from operations to HR

The company has various SaaS applications and platforms to serve its focus areas. SaaS deployments are easy and help to reduce ownership costs for customers. The company’s ability to provide an integrated solution for customers’ business problems is the key growth driver. According to IDC estimates, spending on public cloud services will grow from $229 billion in 2019 to nearly $500 billion by 2023, at a CAGR of 23%. Per a ResearchAndMarkets.com report, the global CRM software market, valued at $25.5 billion in 2018, is projected to reach $36.53 billion at a CAGR of 9.4% through 2022. With its SaaS-based CRM and social enterprise applications, we think that salesforce is well-positioned to lead the market.

The overall acquisition activity that the company has shown is one of the key growth strategies, strengthening Salesforce’s position in the CRM solution-providing space. Notably, buyouts of Tableau, ClickSoftware, Mulesoft, Datorama and CloudCraze over the last couple of years have been immensely lucrative for the company. Salesforce’s partnership agreements with the likes of Amazon and Alphabet for the firms’ cloud services have been helping it expand its international operations. In keeping with its strategy of growing in Europe, in Aug 2015 Salesforce’s investment arm, Salesforce Ventures, announced its decision to invest $100 million specifically in European start-ups.

From a purely financial standpoint Salesforce is a cash rich company with a strong balance sheet. The company delivered better-than-expected results for second-quarter fiscal 2021. The company’s fiscal second-quarter non-GAAP earnings soared 118% year over year to $1.44 per share and beat the Zacks Consensus Estimate of 67 cents. Salesforce’s quarterly revenues of $5.15 billion climbed 29%, year on year, surpassing the Zacks Consensus Estimate of $4.9 billion. The top-line figure also improved 29% in constant currency. As of July 31st, 2020, the company had cash and cash equivalents of nearly $9.3 billion, which is significantly higher than its long-term debt (including current maturities) of approximately $3.4 billion. Since it has net cash available on its balance sheet, the existing cash can be used for pursuing strategic acquisitions, investment in growth initiatives and distribution to shareholders. Additionally, Salesforce’s total debt to total capital ratio of 0.09 is significantly lower than the industry average of 0.5.

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 $115 to the $285 all-time highs in the beginning of September. This represented a phenomenal 148% appreciation for the stock in the last 5 months. Since then, we have seen a volatile correction that has taken the price down with over 14.7% in less than 2 weeks. The stock is currently sitting at the $243 mark after rebounding from the strong diagonal trendline support at $238 and the 20 DMA dynamic support at $240. 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 for us 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 expect that the winners would continue to win. We remain bullish on the CRM 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 diagonal support line at $238, which actually matches with the strong dynamic 20 DMA support sitting at $240. We believe that the short-term correction for the stock is almost over and that it will soon resume its uptrend movement. However, if the prices manages to break the current support levels in play, then it would be heading towards the next strong support mark of the 100 DMA around the $213 level and towards the other strong diagonal trendline support at $206. The stock is expected to find lots of buying pressure there, thus sending the price back to the all-time highs around $285.

We will start buying CRM at the first key diagonal support line at $240 where lots of buying pressure is expected. Should the price break that level to the downside we will be buying more aggressively at the next key support at $215 where we will be able to get a better average cost basis for our positions. Our initial profit-taking target is set at $280, followed by the next target at $300 where we will be fully cashing in our profits and waiting for another profit-taking correction that would give us a chance to buy again at a discount

Nike Inc. (NKE)

Company Background

Founded back in 1967 in the US, Nike is the global leader in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, as well as other services for men, women and children worldwide. Thanks to its strong brand portfolio, including Nike Pro, Nike Gold, Nike+, as well as Air Jordan the company offers well-designed and high-quality premium products, in line with the latest trends. Shares of NIKE have outpaced the industry year to date owing to momentum in its digital business that gained prominence amid the coronavirus crisis. While store closures across North America, EMEA and APLA impacted results in fourth-quarter fiscal 2020, the company benefited from robust double-digit digital sales across all regions. Even as stores reopen, the company continues to witness strong digital trends, which demonstrates the strength of its brands and investments to improve digital consumer experiences. Moreover, the company benefited from Greater China returning to currency-neutral growth in the fiscal fourth quarter as stores in the region resumed operations.

Nike plays a major role in the overall performance of the XLY with its 5.83% weight within the ETF. In fact, the company is among the top holdings of the XLY and we have always been very interested in analyzing Nike’s financial as well as stock market performance in order to identify great investment opportunities and be able to maximize our followers’ profitability.

Current Position – Financial Performance and Future Growth Prospects

NIKE reported lower-than-expected top and bottom lines for fourth-quarter fiscal 2020 due to the impacts of the coronavirus (COVID-19) outbreak across most regions. Results were marred by coronavirus-led store closures across most of the geographies, except Greater China. In the reported quarter, the athletic apparel, footwear and accessory retailer reported a loss per share of 51 cents against earnings of 62 cents in the year-ago quarter. Further, the bottom line compared unfavorably with the consensus estimate of earnings of 2 cents. The bottom line was affected by a top-line decline and soft gross margin due to coronavirus-related impacts, partly offset by a decrease in SG&A expenses. Revenues of the Swoosh brand owner also declined 38% to $6,313 million and missed the consensus estimate of $7,264 million.

Driven by the uncertainty regarding the impacts of coronavirus on the economies globally, the company did not provide any guidance for fiscal 2021. Nevertheless, the company, in general, expects some sequential improvements in the quarters ahead, as retail stores reopen and each market returns to normalized supply and demand.

Based on these assumptions, the company expects fiscal 2021 revenues to remain flat or rise from the prior year. It envisions revenues in the first half to be below the prior-year levels, but less than the decline witnessed in fourth-quarter fiscal 2020. Revenues for the second half are anticipated to improve significantly compared with the fiscal 2020 period owing to expectations of returning to normalized full-price selling across channels.

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 $63 to the $119 all-time highs in the beginning of September. This represented a phenomenal 88% appreciation for the stock in the last 5 months. In the last couple weeks, we saw a volatile correction starting at the beginning of September that initially took down the stock with approximately 6%, but unlike many other companies, Nike has managed to recover all of the losses and even to push towards new highs. The stock is currently sitting at the $118 mark after rebounding from the 20 DMA dynamic support at $110 earlier in the month. 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 for us 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 expect that the winners will continue to win. With that being said, we are issuing a cautiously bearish view on Nike’s stock as we believe that it has substantially overextended to the upside and that is a cause for concern. Additionally, the recent price action of the stock doesn’t reflect the short-term bearish setups that we are seeing across the charts of the leading US ETFs, which also points to the fact that there might be some short-term price declines before the stock moves any higher than the current levels. We remain bullish on the NKE stock in the long-term 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 most recent upward push and are signaling that the uptrend might be experiencing a short-term pause with a downward bias.

The daily chart shows that the price is currently testing the diagonal trendline resistance at $118.50 on a lower volume with a relatively weaker strength than its prior push higher, which is another worrying signal for the bulls. We believe that there is a short-term correction coming up for the stock, after which the uptrend movement will be resumed. The correction that we are seeing for the stock, should take the price down towards the $105-107 region, as there are few strong supports lying around these levels. However, if the prices manages to break the current resistance levels in play, then it would be heading into uncharted territory and will continue to set up new all-time highs. Potential target levels to the upside could be $125 and $130. However, the higher the stock goes without any meaningful pullback the more risky it would be for you as an investor to hold on to your long exposure.


Chart: Nike Inc.

We will start buying NKE at the first key horizontal support line at $110 where lots of buying pressure is expected. Should the price break that level to the downside we will be buying more aggressively at the next key support at $105 where we will be able to get a better average cost basis for our positions. Our initial profit-taking target is set at $122, followed by the next target at $134 where we will be fully cashing in our profits and waiting for another profit-taking correction that would give us a chance to buy again at a 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 XLK and XLY 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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