Some hot stocks to buy are starting to deliver their results and the reactions have varied. This is the strangest earnings season on record because the world was under quarantine for most of the period, so businesses almost have nothing to report. Yet they have the obligations to share with us their misery. This is like students who didn’t attend school this semester but now have to show their grades. It is ugly for the most part, with a few exceptions.
Usually recessions happen because of underlying weaknesses in the macroeconomic conditions. But in this case, the world scheduled the recession on-demand like one would a dentist appointment. The results are equally unsettling. The U.S., for example, went from full employment to an estimated 25% unemployment almost overnight. This is instantaneous devastation.
Some companies have astonishingly managed the crisis very well and even flourished. Today’s hot stocks are ready for trading now that Wall Street has clarity on them. These companies have nothing in common, but they have already reported their earnings with varying results. Two were great and one boring, but all three have near-term outcomes that are less murky now.
The bottom line is that Netflix benefited from the crisis, Chipotle has so far managed through the difficulties like a superstar, and AT&T is surviving the storm.
Netflix (NFLX)
If there is such a thing as a Covid-19 stocks to buy, Netflix stock is one of them. The whole world is stuck at home in quarantine so we are now consuming more media than ever. Most of it is streaming and Netflix has the biggest chunk of that as well. This environment, as sad as it is from a humanitarian perspective, is ideal for NFLX stock.
Tuesday night management reported earnings that crushed estimates. They added 16 million new subscribers which was more than double the forecast. They grew revenues a solid 17% year-over-year in spite of currency headwinds. These are metrics that should have fueled a big rally in NFLX stock but instead it fell 3% on Wednesday. This is a matter of stock price action and not a judgement against the results because they were clearly fantastic.
The problem for the Netflix was that it had just set a new all-time high as it filled the target from the breakout that started early April. Once it crossed $382 per share the technical target became $430. True to form, it rallied 18%. The problem was that it did that ahead of the earnings. This meant that the stock was in weak hands then. Usually it then becomes necessary to shake a few of them out before it can proceed higher.
This first shake out is stabilizing where it is supposed to near $410 per share (see chart). But now the bulls need to hold that, else they risk targeting the $390 zone for a full retest of the April neckline. While this is not a forecast, it is a scenario that exists. More importantly, it won’t change the fundamentals of the company or the make up of the mid-term chart patterns. It is totally normal to retest the zones from where stocks breakout. If not long, I would use such dips to initiate or add conviction positions in NFLX stock.
Chipotle (CMG)
CMG stock keeps the bears on their heels. The stock rallied a mind-blowing 12% off its earnings headlines yesterday. Some will still try to short it, but this hot stock to buy earned this pop the good old fashioned way.
Management delivered a brilliant report with strong metrics in spite of the difficulties. I have done a lot of financial planning for restaurants in the past and to see a +3.3% comparable sales and a 7% increase in overall revenues during a global quarantine is astonishing to me.
I am sure the critics will nitpick the Chipotle report to death, calling out the fact that management pulled guidance, but this is one to enjoy and let be. First, CMG is not alone in pulling guidance and it’s not indicative of an impending disaster. Second, it is the responsible thing to do because the truth is that no one knows how this virus will progress into the summer. It could mutate and become deadlier, or scientists could find a miracle cure. Either way, management is not in the position to speculate on that so they opt out of guiding us on the next metrics.
Retail investors agreed so far as they liked what they saw as evident by the big CMG stock pop. Some Wall Street pundits are perhaps upset because they won’t have fewer talking points to sell to their clients. No, I am not a perma-bull on the stock, but I recognize strength when I see it. CMG stock is a healthy gazelle leaping in a field full of sick or dying ilk. Experts are worried about restaurants not surviving the crisis while CMG is crushing it. It remains in good standing when it comes to stocks to buy. Timing is everything and therein lies a small rub in the story.
The stock has just returned to the accident scene from the February crash, so odds are that it will encounter resistance there. To avoid chasing here, I would prefer buying it on a dip closer to $800 or even $760 per share. I know it seems like it will never go back there, but remember that it was under $700 just 12 days ago. Wall Street has its ways in surprising investors and patience is a virtue.
AT&T (T)
This is the lackluster stock of the three stocks to buy today, so its chart should be boring, but it’s far from it. For whatever reasons it often goes on wild trends. This wasn’t the case yesterday when management reported earnings. T stock fell -1.3% on the headline. This was a ‘meh’ response from Wall Street, meaning it was a punt on deciding whether to love or hate the stock into the next quarter.
There was nothing to love about it. Especially not the fact that they lost 900,000 cable subscribers last quarter and almost 4 million in one year (myself included). I finally cut the cord and now I consume all my media via streaming. I did try to hang with them, but I finally gave up after dozens of attempts to reduce my cable bill. After I left, they called me to get me back to their own streaming alternative, which I never knew existed. It was too late.
I mention this because I suspect that part of their problem lies in the execution. I was their client for cable, internet, copper and wireless phones. It was a miserable experience on all counts and for separate reasons. This is all to say that I am willing to trade T stock, but I am not endorsing the company’s long-term prospects because I think they are not doing things right for the long-term.
Although it has a whopping $150 billion in debt, it still pays a 7% dividend and that’s a good reason for many to chase it. Management stated that they have a solid cash position as they reassured Wall Street that the dividend is safe for now. They remain committed to their cost-cutting measures, so they are ready to right-size headcount and fixed costs to service the debt and keep the dividend whole. This is important because in a world where interest rewards is almost non-existent, stocks to buy like AT&T are magnets for those seeking fixed income.
Timing is key when trading this stock and in the short-term, the bulls have a problem around $31 per share. T stock would be a better buy once it breaks out of $31.50 where it failed on Monday. Then the bulls can create some momentum to tackle the next level of resistance at $34.50.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.