As the Mega Millions jackpot climbs back to $1 billion, a big-time lottery winner could emerge this week.
In an arena of better odds gambling – the US stock market – investors hope that $1 trillion Market cap companies are living up to their ‘mega’ name in the coming months.
After three years of impressive gains, 2022 has not been good for the market’s biggest stocks. The swirling cocktail of inflation, rising rates and geopolitical turmoil has spared few winners and proved that even the wealthiest companies can easily go under in the market.
With America’s corporate giants down 30%, 40% or more from their all-time highs and growing talk of recession, investors are faced with an interesting choice. : buy mega caps while prices are low … or wait for lower prices?
Tread carefully. But don’t wait too long.
What is the Key Factor for an Apple Stock Recovery?
Apple Inc. (NASDAQ: AAPL ) has fallen 27% in 2022, an unusually violent descent for a stock that has experienced only 5% and 7% calendar-year declines over the past 13 years.
Still the world’s largest company by market cap ($2.1 trillion), Apple enters the year with a headwind – a global slowdown in smartphone purchases. Cost inflation and supply chain challenges will complicate matters and may continue to limit near-term revenue growth.
One potential catalyst is Apple’s Q4 earnings report. Better-than-expected holiday shopping sales could drive another consensus-beating performance and boost sentiment toward the stock.
Yet there is another reason to feel optimistic about Apple’s 2023 – China’s Covid restrictions are easing. Sales in Greater China have been flat of late, but Apple products remain very popular in the region. In October 2022, the iPhone reached its highest monthly market share of 25%. With the growth of America and India, the development of economic activity in China is the key to a better Apple.
Is Microsoft Stock’s Yearly Win Streak Ending in 2022?
Microsoft Corporation (NASDAQ: MSFT ) is down 29% in 2022, an abrupt end to a 10-year winning streak that led to a 51% 2021 surge. With the exception of UnitedHealth Group, which stretched its streak of green returns to 14 years, no other Dow Jones 30 component enjoyed a better run.
Now in unfamiliar territory, Microsoft will rely on the familiarity of MS Windows and MS Office software – and better economic conditions – to spark a comeback.
But it will also continue to go in a relatively new direction to focus on commercial and cloud application businesses. Solutions for businesses looking to accelerate digital transformation in the post-Covid economy stand to reduce Microsoft’s reliance on legacy products and doubt PC demand.
Microsoft has nothing else to do with Activision Blizzard to complete the popular Xbox gaming division. After the FTC filed a complaint last month to block the acquisition (and with EU/UK regulators still investigating), Microsoft could choose not to proceed with the deal.
However, Microsoft has a strong set of products tied to the consumer and business markets and a large, loyal customer base that keeps it coming back over time. A sector leading balance sheet full of money is more reason to consider a new position or lower costs.
Will Amazon’s Challenges Continue in the New Year?
Amazon.com (NASDAQ: AMZN ) was the hardest hit among the big 4 mega caps, giving up nearly half of its equity value by 2022. The e-commerce retailer has surprisingly struggled to attract buyers since June 2022 20-for-1 split, with a higher valuation putting above-average selling pressure on the stock. Not even strong Q3 results and above-consensus Q4 guidance can stem the tide.
To win back investors, Amazon needs to show two things: 1) an increase in online spending combined with growth in Prime members and 2) a return to accelerating growth in AWS infrastructure business, the company’s main revenue engine.
One thing that Amazon may continue to struggle with is consumers’ growing desire for experiences with goods. It is necessary to launch new services that satisfy this shift or hope that Americans will also find their pandemic appetite for online shopping. Since the latter seems unlikely, look for the AWS segment to finally get the attention it deserves and dictate more than just daily stock moves.
Is it too easy to jump back into the stock alphabet?
Alphabet Inc. (NASDAQ: GOOGL ) has fallen nearly 40% in the past year amid a slowdown in online advertising. In the Q3 report, investors noted that the slowdown in digital ad spending worsened ahead of the holiday season as advertisers adjusted to a cloudy economic forecast.
If the US economy goes into recession in early 2023, Alphabet’s main source of income may suffer even more. Until businesses regain confidence in the value of online advertising, former Google results are likely to be disappointing. The potential for consumers to reduce purchases of Google hardware in an inflationary, rising rate environment could make things worse. Not even the growth of Google Cloud will save the day.
Meanwhile, Alphabet brought a slew of antitrust lawsuits into the new year. US and international regulators continue to scrutinize the giant find, and Congress is mulling possible action.
There are too many obstacles to expect a swift rebound in Alphabet shares. Investors are better off revisiting it in the second half and ‘hunting’ for a more fundamental-sounding mega-cap.
