3 Tech Stocks Making Headlines: Opportunity or Obstacle?
Buy the rumor, sell the news is an old saw among investors. But is it accurate? As investors are seeing in 2023, good news can be bad news and vice versa. That’s true of tech stocks as it is to the broader economy.
In fact, tech stocks can be more affected by positive or negative headlines. These companies have rich valuations. When news breaks that may imply that they won’t hit their earnings numbers, short sellers are more than happy to drive the stock lower. The reverse is true as well. Positive news can stoke bullish fires.
If you’re a long-term investor, you can afford to ignore the day-to-day news surrounding a stock you own. If your reason for buying a stock hasn’t changed, corrections provide buying opportunities and bullish runs can be an opportunity to take profits.
But if you’re a trader, it’s important to distinguish between what is news and what is noise. You don’t want to be on the wrong side of that trade. Let’s look at three tech stocks that have been making news in the last month or so and see if the news is an opportunity or an obstacle.
Apple (AAPL)
Apple (NASDAQ:AAPL) stock has made a strong recovery after falling 26% in 2022. The stock is up 37.5% in 2023. But the stock is down about 3% in the last three months and the stock is now stuck in a range.
One news item weighing on investors is concern that the company’s iPhone sales will not meet expectations, both in China and in the United States. And the launch of the company’s iPhone 15 was seemingly met with a less-than-enthusiastic response.
Or did it? Apple has already moved back the delivery date for the iPhone on the strength of the pre-orders. Goldman Sachs (NYSE:GS) says that demand for the iPhone outpaces supply and raised its price target by 20% to $218. And other analysts believe that the price target may be too low.
In any event, the story of Apple is about more than the iPhone and includes over 1 million subscription-based customers. You may have concerns about the valuation of AAPL stock. But it still seems like this is a time to buy the dip.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) announced it was hiring approximately 250,000 workers for the holiday season. The company also announced it was raising the pay for contracted delivery drivers. Both of these would suggest that the company expects e-commerce demand to increase for the rest of the year.
However, AMZN stock dropped about 1.6% on the news and that continued a decline of over 3% since September 13. The reason may be that the cost of adding workers and increasing pay for others is likely to be a hit to the company’s bottom line regardless of any revenue gains they may get.
That’s not what investors need to hear when it comes to a stock that is already richly valued at over 61x forward earnings. Investors should wait until Amazon reports earnings in October before making a decision on AMZN stock.
PayPal (PYPL)
On August 14, PayPal (NASDAQ:PYPL) announced a change of leadership. Alex Chriss will take over the reins as chief executive officer (CEO) starting on September 27. The decision was expected after the planned departure of CEO Dan Schulman.
Change can make investors nervous, especially when Schulman has been the CEO for nine years. However, investors seem mildly enthused as PYPL stock is up about 4% in the last month.
The question for investors is what this means to the long-term fortunes of PLPL stock? The stock is down 34% in the last 12 months. In fact, the company’s stock is trading at levels it hasn’t seen since 2017. At that time, PayPal was generating $13 billion in revenue. Last year it brought in over $27 billion. And after a rough 2022, earnings are back near 2021 levels.
That suggests that PayPal is undervalued. It also explains that the perception of competition in the online payer space may not express the reality that’s going on in the space.
That being said, investors shouldn’t be looking at the change of leadership to give PYPL stock an immediate boost. But with the stock trading at just 16x forward earnings and the company projecting 17% earnings growth in the next 12 months, this may be a time to buy the news. Just be prepared to hold for longer than you may expect.
On the date of publication, Chris Markoch had a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
