2 Tech Stocks To Buy On Pullbacks

2 Tech Stocks To Buy On Pullbacks

Posted On February 6, 2020 5:40 pm

It’s been a strong start to the year for the Nasdaq-100 ETF (QQQ), with the index up 8% in less than 25 trading days, more than doubling the performance of the S&P-500 (SPY). While the majority of technology stocks remain extended from their bases and have seen great runs the past few months, there are a couple of names that have been held back, but funds have quietly been accumulating them. I prefer to buy solid companies when they’re unloved but remain in steady uptrends, rather than those names where retail are busy climbing over each other to get into currently. As Warren Buffett is famous for saying, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Let’s take a look at two stocks that exemplify this statement below:

While the market has been busy bidding up Tesla (TSLA), Microsoft (MSFT), and the two payment behemoths: Visa (V) and Mastercard (MA), PayPal (PYPL), and Amazon (AMZN – Get Rating) have been mostly forgotten. Amazon and PayPal have both been lying dormant for over six months without making new highs, but have seen significant buying pressure near the lows of their bases. The attractive thing about both of these names is that annual earnings growth is expected to hit new highs yet again in FY-2021, while the earnings growth rate accelerates materially. Both Amazon and PayPal continue to put up 20%+ annual EPS growth, which is the formula William O’Neil used to uncover the best growth stocks with the strongest performance track record from the 1950s to 1980s. Let’s begin with digging into Amazon’s growth below:


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(Source: YCharts.com, Author’s Chart)

As we can see in the above chart, Amazon delivered 14% growth in annual EPS for FY-2019 but is set to report 25% growth in FY-2020, 38% growth in FY-2021, and over 27% growth in FY-2022. Therefore, the company’s annual EPS growth rate is expected to accelerate materially on a sequential basis over the next two years, launching 900 basis points in FY-2020 based on estimates, and adding another 1300 basis points to its growth rate in FY-2021. This is incredible growth from a mega-cap company, and there are few companies in the mega-cap space that boast this type of growth.

Amazon’s decision to drop its $14.99 monthly membership fee for grocery delivery has been a significant tailwind to their grocery business, with delivery orders doubling year over year in Q4. Since the Whole Foods acquisition a few years ago, many have doubted Amazon’s ability to take a bite out of the grocery industry. However, their recent initiatives seem to finally be gaining some traction at a time when Prime member growth is slowing due to saturation. Therefore, not only is the grocery delivery an added perk to tie customers to their Prime membership, but it’s also added revenue for the company. As we can see in the below chart, the market certainly likes the most recent earnings release, with the stock breaking out of a multi-year cup and handle near the $1,980 level. Going forward, I would expect any 7% plus to the $1,920 level to be buying opportunities.


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(Source: TC2000.com)


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(Source: YCharts.com, Author’s Chart)

Fortunately, for investors looking to begin a position in PayPal, the stock’s valuation has…

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