A Tech Industry Titan On a Discount? My thoughts for the week - 2023/01/16
Deep-dive technical and fundamental analysis of Google Stock (NASDAQ:GOOG)
Welcome to the latest issue of 🕵 The Seeker 🕵where I embark on a journey to uncover the truth behind the stock market's performance.
"The seeker of truth shall find beauty. The finder of beauty shall find truth." - Rumi
Let's start off by taking a look at the performance of some of my previous picks. While most stocks are soaring, AbbVie ABBV 0.00%↑ , unfortunately, took a 9% hit. But fear not, dear readers, I remain bullish on this stock and still hold. I believe that the trend will continue to push upward.
Let’s see how the other picks are performing:
GS 0.00%↑ - Goldman Sachs is up 7.5% and will announce earnings on Tuesday. Since the Friday banks earnings were decent I am optimistic and I think the price will test the 390$ level.
TSLA 0.00%↑ - Tesla is up 13%. I think the price found support as it was way too oversold. It is not out of the question to rally up to the 150$ mark.
V 0.00%↑ - Visa is up 9% since the release of the article. As I pointed out in the article the current zone of 220-230$ was the target.
MU 0.00%↑ - Micron Technology is up more than 13% since the release. My forecast is going above the 60$ level and possible consolidation there.
Recap of the past week
The CPI came in better than expected, at -0.1% MoM pushing the annual CPI to 6.5%. Following the report, it was a rollercoaster, initially, the market sold off, but eventually gained ground. The Nasdaq futures QQQ 0.00%↑ ended the week above 11500$, while the S&P500 SPY 0.00%↑ closed just 2 dollars shy of 4000$ level. The yields closed lower initially, however, they retraced a bit on Friday.
The numbers are good, but the 6.5% is so far from the desired 2% inflation. My projection is two rate hikes of 0.25% in February and March and possibly flatting around 5% and watching closely the new CPI data coming in.
The initial jobless claims came in hotter, indicating that the labor market is still strong. Especially the Services sector is stronger than ever, which will be one of the things the FED will be monitoring closely, as one of the main targets the have is to cool down the labor market. The hawkishness will stay, at least for now.
What to expect in the coming week
Monday, Jan 16th:
Markets are closed
Davos Economic Forum, Day 1
Tuesday, Jan 17th:
China - GDP, Retail Sales, and Industrial Production numbers
Goldman Sachs and Morgan Stanely MS 0.00%↑ report earnings
Wednesday, Jan 18th:
US - PPI, Retail Sales, and Industrial Production numbers
UK - CPI report
Bank of Japan interest rate decision
Thursday, Jan 19th:
US Housing Starts
Initial Jobless Claims
ECB’s Christine Lagard speaks
Procter & Gamble report earnings PG 0.00%↑
Friday, Jan 20th
Japan CPI
US Existing Home Sales
Today’s Stock Pick
My eyes are all on Google GOOG 0.00%↑ at the moment.
Yes, the tech giant had a rough year, falling more than 45% from the all-time high in November 2021, however, the price looks cheap at the moment and is offering a solid risk-to-reward ratio.
Since the low, the price has regained almost 13% and is currently set to cross above its 50-day moving average. This move is further supported by a bullish MACD cross and up-trending RSI above 50. The next few days are crucial to look closely at the price action. If the crossover is confirmed the price will push upward and go above 100$.
🏭 Industry Analysis 🏭
To analyze the industry I will use State Street’s Communication Services ETF XLC 0.00%↑
The year was hard, however, last 3M, 1M and 1W periods the industry is outperforming the SPY and Google is not far behind and catching up.
Having this in mind, I wanted to check the Industry Breadth to gain a little more context
Reading the graph I can see 96% of the ETF constituents are above their 50-Day WMA, which is a strong bullish signal and a potential start of an upward trend.
📋 Some Financials 📋
I won’t be focusing too much on the financials as the last report was on October 25th, so they are long played out and priced in.
However, I will mention some things I consider important such as the Cost of revenue.
The cost of revenue of Google is slightly above the industry average but stable across time with minimum fluctuations. This tells me the company has a solid cost structure and well-established operations.
The revenue drops a little in the most recent quarter however the net profit margin is one of the best within the industry (as seen below).
The company has a debt-to-equity ratio of 0.12, which is great, and it has acquired minimum debt over the past year.
What’s more, it is currently sitting on a lot of cash, which can be deployed for shareholder-friendly activities.
💰 Valuation Models 💰
Going forward in my analysis I calculate the intrinsic value of the stock. To do that I have developed 3 proprietary models. For the models, I take into account the historical growth rate of each metric as well as the latest reported value.
The models are as follows:
Price-to-Earnings Model
Free Cash Flow Model
Sales Model
All three models agree: the stock is currently undervalued. The average price of all three is 103$ or more than a 10% difference from the current price.
Analyst Ratings
Moving on to the analyst ratings.
Of all 43 analysts giving a 1-year price forecast, 36 are rating it as a “Strong Buy”, while 8 have rated it as a “Buy”. The minimum estimate is 93$ which is still 1$ above the current price, while the max is 150$.
Overall, I think the stock is at discount and is offering an appealing risk-to-reward opportunity. There is a clear technical set-up, which is supported by better-than-the-industry fundamentals, and an overall bullish sentiment from the institutional investors. If the S&P500 breaks above the resistance and rally, which I think it will, Google price will easily go to the 110$ level.
📰 Some news 📰
I have curated some of the recent news and analysis of the company, which you can check below
🎁🎁 Bonus 🎁🎁
One of my quant screeners signaled an unusual Insider trading activity for some stock.
PG&E Fire Victim Trust, which is a 10 percent owner of PCG 0.00%↑ has sold 60 million shares last Monday.
Another interesting transaction was that of Michael Lawrence Thompson the Executive Vice President of Cintas Corporation CTAS 0.00%↑.
He sold more than 50% of the shares he owns or exactly 14795.0 shares at 444.98$
And last but not least, the Moderna MRNA 0.00%↑ CEO, Stephane Bancel, has been on a selling spree since the beginning of the year. The price is moving upward, however, it will be interesting to see how the price will develop.
That’s all from me for this one. I would love to hear your thoughts in the comment section below.
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🙋♂️ Cheers! 🙋♂️
Disclaimer: Please note that the information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. The information provided should not be relied upon as a substitute for financial, legal, or professional advice. Before making any decision, it is important to consider all relevant information and consult with a professional who can provide personalized advice based on your specific circumstances. The author and publisher of this article cannot be held liable for any actions taken based on the information provided. This is not a recommendation to buy or sell any specific securities or financial instruments.