An important week in the fourth-quarter earnings season just concluded with five of the Magnificent Seven reporting earnings: Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META) and Microsoft (MSFT). Their collective results silenced many doubters while sparking some energy back into growth stocks.
On Friday the Dow Jones Industrial Average rose 134.58 points, or 0.35% to end the session at 38,654.42. The Blue Chip index rebounded strongly after a falling more than 200 points during the session. The S&P 500 index ended Friday's session 52.42 points higher, or 1.07% to close at 4,958.61, while the tech-heavy Nasdaq Composite Index surged 267.31 points, gaining 1.74% to close at 15,628.95.
For the week, the Nasdaq ended 1.12% higher, while the Dow closed up 1.43%, and the S&P 500 added gains of 1.38%. The performance in the Nasdaq and S&P 500 on Friday was driven by the results from Meta, with its stock surging more than 21% Friday after the Facebook parent company not only posted Q4 profits that tripled from the year-ago quarter, the company also announced a $50 billion share buyback. Meta’s net income came to $14 billion from $4.65 billion a year earlier.
During the quarter, Meta’s revenue rose 25%, marking the fastest quarterly growth rate in almost three years, thanks to recovery in the digital ad market. It was, however, the company issuing its first-ever cash dividend that got investors excited after Meta’s cash and equivalents surged to $65.4 billion at the end of 2023, from $40.7 billion a year earlier. Meta's dividend of 50 cents per share will be paid on March 26.
Meta’s gain on Friday helped to offset weakness in the broader market after the Labor Department reported January jobs report, during which the U.S. economy added 353,000 jobs, more than topping estimates of 185,000 jobs. The strong jobs report dampened hopes that the Federal Reserve would initiate its first interest rate cut in March. The jobs data comes on the heels of Fed Chair Jerome Powell signaling earlier this week that the Fed was unlikely to cut rates in March anyway.
Friday’s jobs report also included inflationary data that showed wages grew much faster than expected, expanding by 4.5% year over year, higher than the 4.1% forecast. In terms of the Fed's decisions regarding interest rates, while a cut now appears less than likely, Q4 earnings are coming in better than expected, fueling the market rally. What’s more, the forward guidance that have been issued have also been encouraging. Is that optimism well-placed? This question will be answered by the end of this earnings season. In the meantime, here are the stocks I’ll be watching this week.
Palantir Technologies (PLTR) - Reports after the close, Monday, Feb. 5
Wall Street expects Palantir to earn 8 cents per share on revenue of $602.79 million. This compares to the year-ago quarter when earnings came to 4 cents per share on revenue of $508.62 million.
What to watch: Over the past several months, Palantir stock has not participated in the AI trade as the company’s investors hoped it would. The stock has grossly underperformed the market, falling some 20% over the past six months, including a 4.85% decline year to date, trailing the S&P 500 index in both spans. Although the company is broadly known for its work with the U.S. government’s defense and intelligence agencies, Palantir's data analytics capabilities now includes a number of AI-powered services for organizations across public and private sectors.
Analyst Brent Thill at Jefferies, however, isn't impressed. The investment firm recently downgraded the stock, calling the company’s artificial intelligence story as “overhyped.” Thill lowered his rating on Palantir to Underperform from Hold with a $13 price target on the stock. From current levels that translate to a potential decline of 20%. "We are still fundamental fans and believe that the company has potential to gain share in an under-penetrated and large [total addressable market] but think concern over top-line growth will be the primary driver of stock performance over the next 12 months.” Thill’s somewhat bearishness is counter to the enthusiasm Palantir CEO Alex Karp has displayed in previous quarters.
In referring to Palantir’s new artificial intelligence platform, Karp has cited demand for the platform is “without precedent.” Meanwhile, the company has a strong margin profile with Q3 gross margin coming in at 81%. This suggests not only a strong competitive advantage, but also the company is capitalizing on the expansion of new use cases. Nevertheless, for the stock to reverse course, investors will be watching for metrics such as customer additions, billings value as well as segment financials to assess whether Palantir’s near-term stock value.
Alibaba (BABA) - Reports before the open, Wednesday, Feb. 7
Wall Street expects Alibaba to earn $2.67 per share on revenue of $36.73 billion. This compares to the year-ago quarter when earnings came to $2.79 per share on revenue of $35.9 billion.
What to watch: How long can Alibaba stock remain cheap? Currently trading at around $72, BABA stock has fallen some 34% over the past year, compared to 20% rise in the S&P 500 index. The stock is down 6% year to date, including 30% over the past six months. Both spans trail the S&P 500 index. Also with the stock falling 71% in three years, compared to a 32% rise in the S&P 500 index, BABA still has a lot of ground to make up. On the bright side, the stock is up 25% since reaching its low of $58. This gain has been fueled, in part, by what is believed to be a softer regulatory and macroeconomic environment in China that can improve the company's growth trajectory. With a more subdued regulatory scrutiny of big tech platforms in China, the headwinds BABA has faced over the past two years could be fading.
Another potential catalyst is the management recently touting new AI tools, putting BABA at the forefront the main providers of key AI technologies in China. The launch of AI tools is another way for BABA to leverage its market leadership position within the cloud segment. This highlights the company’s diversified revenue sources, along with its cloud potential. With more than 900 million annual active customers on its various sites, Alibaba has a robust platform for merchants, where there more than 8 million sellers. This is notable given that Chinese e-commerce market is poised to grow at an 11% CAGR in the next five years. All told, Alibaba might not be completely back in the market’s good graces, but the Chinese tech giant has some massive tailwinds for future growth. On Wednesday the stock can climb if Alibaba can deliver a top- and bottom-line beat and provide confident outlook for the next quarter and full year.
Walt Disney Company (DIS) - Reports after the close, Wednesday, Feb. 7
Wall Street expects Disney to earn $1.04 per share on revenue of $23.79 billion. This compares to the year-ago quarter when earnings came to 99 cents per share on revenue of $23.51 billion.
What to watch: Can Walt Disney stock ever regain its magic? That is a question investors have asked for the past twelve months. While the company has enjoyed success with its streaming platform Disney+, the shares have been a disappointment, falling 11% over the past year, trailing the 20% rise in the S&P 500 index. However, on a year to date basis, the shares are up 7%, while the S&P 500 is up 2.5%. The media conglomerate has begun to show signs of recovery, with strong performance in various areas. Disney stock now present significant growth opportunities given the improvements in its streaming operations, including Disney+, ESPN+, and Hulu.
In Q4 the company reported 150.2 million total Disney+ subscribers, marking the first sequential subscriber increase since reporting 146.1 million in Q3. To be sure, the company is still grappling with operational challenges that has weighed on its fundamentals, including persistently weak profit margins, operating losses stemming from the Direct-to-Consumer segment, a mountain of debt. The management has taken steps to address these issues, including several aggressive cost-cutting measure that aimed to cut some $7.5 billion in expenses over a window of time. The management also expects fiscal 2024 free cash flow to reach pre pandemic levels which would be north of $6.75 billion.
It remains to be seen whether the company can achieve these profitability goals. But the stock is cheap, trading at ten-year lows and at just 17 times forward EPS estimates. And assuming Disney can realize the benefits and leverage of combining the platforms, Disney stock may finally begin to rise in the next 12 to 18 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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