Earlier this week, I wrote about the spotlight-hogging FAANG stocks - Facebook Inc. (Nasdaq: FB), Apple Inc. (Nasdaq: AAPL), Amazon.com Inc. (Nasdaq: AMZN), Netflix Inc. (Nasdaq: NFLX), and the "new Google": Alphabet Inc. (Nasdaq: GOOG) - which comprise more than a third of the Invesco QQQ Trust, the tracking ETF for the Nasdaq 100.
Specifically, I used my Best in Breed analysis to identify Amazon as the go-to stock for a bullish play and Facebook as the FAANG laggard that should be shorted.
Today, I'll discuss the remaining three in terms of where they currently stand and - more importantly - how to rake in the profits on them going forward.
Let's take a look...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
First Ever Trillion-Dollar Club Member
Of course, the headliner of the week is Apple, and with a huge follow-through today after yesterday's earnings surge, the company peaked above $207 and hit 10 digits in market cap.
Apple hit it out of the park in its earnings report, beating on revenue (notably in software and services), profit, and forward-looking guidance.
You Have to See It to Believe It: Chris Johnson is the Night Trader, and his most powerful tool tells him exactly which stocks are set to go up tomorrow, the next day, the day after that, and beyond. And it is rarely ever wrong. Click here to learn more...
The only blip was iPhone sales, which were flat and came in a shade under expectations. The market didn't care, however, as it focused on the huge jump in the average selling price per phone.
There isn't anything not to like about Apple other than that it is a bit overbought at the moment. But that happened last quarter as well, and the subsequent price action was bullish.
In the short run, I wouldn't be surprised to see the stock take a pause. The battle for first to a trillion has been won, and this mark could be a brief turnaround point.
The post-earnings surge of 9% in two days may be a bit overdone, as seen in its overbought condition (relative strength index chart below).
Yet from a longer-term perspective, Apple is hitting on all cylinders. And even though it had the largest post-earning pop of the FAANG stocks, it remains the cheapest stock in the group.
With a forward P/E ratio of just 15, Apple is a bargain compared to Amazon (73) and Google (26), the two other stocks that hit record highs after earnings.
Whether it outperforms Amazon over the next several months is anyone's guess, but I'd take either one in my portfolio.
As I said with Amazon, a call option like this one - AAPL Sept. 21, 2018 $200 call (180921C00200000) - would make a prudent play on Apple's strength.
Not in the A-List Category, but Still a Strong Contender
Next up on our FAANG list is Google, which also hit a record high after smashing earnings estimates. However, the stock has suffered a bit of a hangover since reaching new heights, slipping nearly 4%.
The shares are coming off their most overbought period since January, so perhaps the retreat is expected.
The stock is still finding support at its 20-day moving average, while the 50-day moving average is in place to support the shares should the downtrend extend to 10%.
And even with the current decline, the overall uptrend of the past three months is intact.
With a reasonable P/E ratio of 26 and strong fundamentals behind it, there's plenty of reason to believe in Google going forward.
That said, I'm not putting it in the Amazon and Apple category. Although, a longer-term call (say, January 2019 or later) would be a wise addition to any portfolio.
Stay Neutral on This One-Trick Pony
Finally, we turn to Netflix, which would be the runt of the litter had Facebook not posted the biggest one-day market cap loss in history.
Frankly, with a market cap of around $150 billion, I'm not sure why Netflix is in this group, but I digress.
Netflix missed subscriber growth estimates by a lot in its earnings report. And that's a problem, since Netflix is largely a one-trick pony - with the one trick being subscriber growth.
You need a lot of it, especially with a high forward P/E ratio of 79 (the highest of the FAANGs). Miss on that, and your stock tumbles as much as 14% the next day.
The problem for Netflix is that this slide was just the beginning. Often after a big earnings move, a stock will correct a bit as the market works off a knee-jerk type reaction. Though that wasn't the case with Netflix, which declined in six of the nine trading days following the initial plunge.
To be fair, the stock has managed to climb the past three days, but the recovery has only reached the low of the first drop on July 17.
Netflix's chart is less than reassuring, as there isn't any trendline support in sight, and the 20-day moving average is bearishly crossing below the 50-day moving average.
All is not yet lost for Netflix.
Earnings beat the estimate handily, while revenue was a shade below expectations. Nothing to be ashamed of there. And the last time the shares were this oversold, the stock went on a solid rally.
I'm not throwing in the towel quite yet, but I'm not bullish on Netflix, either. I'm neutral for now, so I'd leave this stock alone for a while.
And the Diagnosis Is...
There you have it. Were the FAANG stocks defanged? Hardly. Do they have a bit of a collective toothache? I'd say so, thanks to Facebook and Netflix.
If this analysis, based on my Best in Breed system, shows anything, it underscores the importance of stock picking in the current market environment. And with the market entering a seasonally weak period, the ability to pick the best and worst stocks in a sector or group takes on added importance.
This Trader Is Betting It All He Can Show You How to Turn $5,000 into AT LEAST $174,500
Chris Johnson is on pace to see 3,390% total winning gains this year.
And now he's guaranteeing his recommendations will give you the chance to do the same.
If not, he's working for free.
So mark your calendar for one year from today...
Set a reminder on your phone...
And click here to learn how to join right now.
Follow Money Morning on Facebook, Twitter, and LinkedIn.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.