The Magnificent Seven – AMZN and GOOG

Over the summer, we began publishing our "Quantamental" analysis of the most widely owned and known stocks in the market every Tuesday.

This analysis framework is one we have developed over the last three decades as a professional money manager.

It combines both “quantitative” (technical analysis) and “qualitative” (fundamental analysis). Our goal is to create an analysis framework to gain a view of a stock quickly.

This framework is the beginning of our own analysis process for both TRADING and INVESTING.

Our goal in sharing it is to give a quick view of these leading stocks.

Here is a table showing the data from all the analyses we have published on "The Magnificent Seven."

As we enter the heart of earnings season, we thought it would be a good time to update the analysis for each of these stocks.

Yesterday, we shared our updated analysis of the first two: Tesla, Inc. (NASDAQ: TSLA) and NVIDIA Corporation (NASDAQ: NVDA).

Today, we will analyze Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOG).

Over the next two days, we will cover the rest.

Amazon.com, Inc. (NASDAQ: AMZN)

AMZN got hit hard during the early August sell-off but has been one of the strongest of its peers recently.

Here is a chart of the recent stock price along with the "relative strength index" (RSI) chart…

After hitting a new high in June, the stock sold off hard into the August 5^th market sell-off event but has since recovered most of the losses. It is still down about -8% from that all-time high.

The stock was hit hard in that sell-off, as it had reported strong numbers on August 1. However, it talked about a cautious consumer, and the timing of that commentary with the weakness in the stock market left the shares very vulnerable.

Despite that caution, the analysts’ estimates have continued to increase for the company.

Here is an updated chart showing the earnings revisions for 2024 EPS along with the stock price…

Like the other stocks in "The Magnificent Seven," earnings estimates came down post-COVID. The stock followed the earnings.

However, estimates have recovered since early 2023 and are now more than double, although they are not yet at the levels they were in 2021.

This is the pattern we have seen in most of these stocks.

Our view is simple—if the earnings estimates continue to move higher, then we think the stock will move higher with them. Given their recent momentum, we think this is likely to happen and will be good for the stock.

From a short-term technical perspective, the stock is in a middle ground. The RSI is neither overbought nor oversold. The stock is still in a nice uptrend and a bit off its highs.

We think this combination—higher earnings estimates and solid technicals—supports owning the stock here.

This setup is similar to when we first analyzed the stock. From that initial recommendation, the stock was flat, but from our updated analysis in early August, it is up nicely at +15%.

We continue to like it and think it is a solid holding or a buy here for new investors.

UPDATED CONCLUSION - BUY

Alphabet Inc. (NASDAQ: GOOG)

GOOG is the most intriguing of "The Magnificent Seven" as it has been in the news more than any of them recently.

Like the other members – except for TSLA – it has been a nice uptrend these last few years.

Here is a stock price chart along with the "relative strength index" or "RSI” …

The stock hit a high in early July (along with many others) and then has pulled back as much as -20%. This is the most of any of these stocks outside of TSLA.

The stock also twice breached the 30 RSI level during this period, a rare occurrence that has happened only fifteen times in the last decade.

The company reported strong results on July 23. Like AMZN, however, the stock sold off.

We think a lot of this had to do with the stock market at the time, but they also had commentary that concerned the market. It wasn’t cautious like AMZN, but they noted that they would continue to spend aggressively on artificial intelligence in their business.

If they had beaten the numbers and had the same commentary at another time, the stock would have traded higher. The commentary drove the stock lower, with the stock market coming off its highs and burning off that overly positive sentiment in late July.

In a very similar situation to AMZN, despite concerns about the commentary, the stock company has continued to see higher earnings revisions.

Here is the chart of analysts' estimates of 2024 EPS estimates…

They have continued to move higher.

Again, you will recognize the same pattern as AMZN. Estimates came down post-COIVD and then bottomed in early 2023. They have moved higher since then, and the stock has gone up.

The company has strong earnings momentum.

Concerns about the Department of Justice's ongoing anti-trust investigation into the company have driven the stock lower than any of its peers. A court ruled in favor of the DOJ and happened to do so on August 5.

We wrote about the DOJ case in HX Daily back in August. You can read that note here.

we think it is impossible for us – or any other analyst – to figure out exactly how this investigation ends.

We know that we have seen many similar situations in the last thirty years. Most of the time, they end up with some restrictions on the company, but nothing changes the real narrative. Per our note, we think this will also happen this time.

We do think, however, that there is a greater chance that the DOJ could accomplish something more ambitious. It is a low probability, but it is possible.

We are reminded of the break-up of the old AT&T back in the 1980s. We don’t think the DOJ could achieve anything THAT big, but the outcome for the stock could be the same. It could go MUCH HIGHER.

We think that if the company were broken up into pieces, the total could be much higher than the current stock price—currently by as much as +50% to +100%.

We won't discuss it here, but we think it could be a very positive catalyst. Again, we think it is unlikely, but the "negative" in this case could be a huge positive.

Given the strong earnings momentum, the stock's uptrend, and our constructive view on the DOJ investigation, we think the stock is a buy here. Also, right now, it is the most attractive of "The Magnificent Seven."

UPDATED CONCLUSION – BUY

In tomorrow's HX Daily, we will continue our analyses of Microsoft Corporation (NASDAQ: MSFT), Meta Platforms, Inc. (NASDAQ: META), and Apple Inc. (NASDAQ: AAPL).