Stocks to Watch Now: Amazon and Sears, Johnson & Johnson, Activision Blizzard

Our latest list of stocks to watch now includes an unlikely new alliance, an outstanding earnings beat streak, and a new entrant into the professional sports world:

  • stocks to watchFirst, the king of online retail joins forces with a brick-and-mortar dinosaur.
  • Then, one of America's oldest companies continues an impressive earnings streak.
  • And finally, a new video game league attracts attention from the NFL and MLB.

Stocks to Watch No. 1: A Helping Hand Isn't Enough to Make Sears Amazon-Proof

We've written extensively about the struggles of Sears Holdings Corp. (Nasdaq: SHLD). The foundering retailer was thrown a lifeline last week, though, when it announced that its Kenmore appliances would be sold by online retail powerhouse Inc. (Nasdaq: AMZN).

Kenmore has a line of smart appliances that integrate with Amazon's Alexa, allowing consumers to use voice commands to control their air conditioners, water heaters, washers, dryers, and refrigerators.

Sears stock jumped more than 10% on the day of the announcement. But it didn't take long for it to slip back down. Shares were trading at $8.63 on Tuesday afternoon, essentially flat over the last week.

In spite of the apparent silver lining, it does little to alter the dark cloud hanging over Sears. It has been plagued by declining sales, negative earnings, and store closings for years now.

"It's Amazon versus everybody else," Money Morning Chief Investment Strategist Keith Fitz-Gerald reminded us again last week. Sears is still firmly in the "everybody else" category, and its future prospects are not promising.

One reason for Amazon's move could be that antitrust talk has been heating up. Last week it was reported that a congressman from Rhode Island has urged two House committees to look into Amazon's June acquisition of Whole Foods Market Inc. (Nasdaq: WFM) for possible antitrust violations.

So offering a helping hand to one of its brick-and-mortar competitors, especially a dying one that poses little threat, could be a well-timed PR move by Amazon.

The real losers in the deal were home services retailers. Shares of Home Depot Inc. (NYSE: HD), Lowes Companies Inc. (NYSE: LOW), and several other home services and appliance dealers were down as investors brace for the Amazon effect potentially hitting that sector.

AMZN is up 2.5% since the announcement.

Stocks to Watch Now No. 2: Johnson & Johnson's Earnings Beat Streak Is Older Than Snapchat or Blue Apron

Johnson & Johnson (NYSE: JNJ) announced second-quarter results last week. The multifaceted industrial giant missed revenue estimates, bringing in $18.8 billion compared to an expected $19 billion. But it beat earnings estimates by $0.04, reporting earnings per share at $1.83.

That's a 5.2% improvement over the same quarter last year. JNJ has now beaten earnings estimates for a stunning (and rare) 26 consecutive quarters, going back to the beginning of 2011.

The New Jersey-based conglomerate deals in consumer products and medical devices, but it's the pharmaceutical business that drives most of its growth.

This week JNJ announced encouraging results from a phase 1/2a study for an HIV vaccine. The study involved 393 healthy volunteers, with results reported at the IAS Conference on HIV Science in Paris. The HIV vaccine is a particular challenge for researchers because of the diversity of the virus. Johnson & Johnson's pipeline vaccine uses a "mosaic" technique, combining pieces of different viruses in order to give the body multiple defenses. If all continues to go as planned, the vaccine will be tested on 2,600 healthy women in southern Africa later this year.

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In August, subsidiary Janssen Research & Development will release full results from the phase 3 COMPASS study on Xarelto. The blood thinner is already used to prevent blood clots and is being tested for the prevention of major adverse cardiac events. Results will certainly be positive, as the study was ended earlier than planned after meeting pre-specified criteria. The new indication could add 4 million new candidates for Xarelto.

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These developments, plus the upcoming FDA review for rheumatoid arthritis drug sirukumab in September, give Johnson & Johnson some potential tailwinds going forward.

In May, Money Morning Director of Technology & Venture Capital Research Michael Robinson called JNJ undervalued due to its low price/earnings ratio relative to its industry competitors. On top of that, the stock has increased its dividend in each of the last 55 years; it's currently at $0.84 per share.

"This is one of those rare opportunities to buy a foundational stock with expanding growth prospects at a great price," Michael wrote.

Analysts overwhelmingly rate JNJ as either a "Buy" or a "Hold." Last week, Credit Suisse set a price target for the stock at $148. Shares currently trade at $131.75.

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Stocks to Watch No. 3: Already One of Our Top Picks, Activision Blizzard Sets Its Sights on the Sports World

Gaming company Activision Blizzard Inc. (Nasdaq: ATVI) is one of the stock market's top performers this year, gaining more than 70% so far.

Second-quarter numbers for the maker of "World of Warcraft" and "Call of Duty" are due Aug. 3, and analysts anticipate a 24% drop in revenue from last year and a 44% drop in earnings per share.

However, Activision crushed earnings estimates last quarter by 48% and has beat expectations in each of the last four quarters.

A big reason for the recent success is "Overwatch," an online first-person shooter released in May 2016. The game is Activision's eighth franchise to reach $1 billion in revenue. It had 30 million registered users as of May - a number that's increasing by an estimated 2.2 million a month - and is one of the most watched games on Amazon's Twitch streaming video service.

That's right: most watched. The video game industry today is as much for spectators as it is for players. It's like professional sports in that way.

In fact, it's exactly like professional sports.

Last November, Activision subsidiary Blizzard Entertainment announced plans for the Overwatch League. Set to launch this year with the first games played in a Los Angeles arena, the Overwatch League will feature city-based franchises with professional player contracts, salaries, and a regular season followed by a postseason tournament.

Executives from the New York Mets and the New England Patriots have already bought Overwatch franchises for a rumored $20 million each. The league intends to open with 16 teams and eventually expand to up to 32.

E-sports is not brand new. The seventh annual championship tournament for Valve Corp.'s "Dota 2" will be held in Seattle's KeyArena next month with a prize pool of $22 million. But the Overwatch League's city-based structure is a new twist that Blizzard hopes will attract new spectators.

Gaming industry analysis firm Newzoo projects e-sports to be a $1 billion industry by 2019.

Activision has shot up 92.4% since Michael Robinson recommended it to readers in October 2015, compared to a 25.3% rise for the S&P 500. That makes Activision one of our Money Morning Top 10 Outperformers.

For those following along, here's the latest list:

stocks to watch now

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About the Author

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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