6 min read
Three of the biggest tech companies in the world recently posted stellar earnings. While the majority of companies in the S&P 500 beat analyst estimates this past quarter, Facebook (FB), Apple (AAPL), and Alphabet (GOOGL) have multiple growth catalysts that should continue to drive their prices higher.
Q2 2021 earnings season is almost over, with 88% of the companies in the S&P 500 reporting results. So far, the data has been great. 86% have beaten expectations for earnings and 76% beating on revenue. The earnings surprise figure is the largest since FactSet started tracking in 2008. These figures support the strength in the market this year as the S&P 500 is up over 11% year to date.
While some of this growth can be attributed to last year’s first quarter being hampered by the initial stages of the pandemic, much of it was driven by swift monetary and fiscal stimulus measures. But these measures won’t be here forever, which means that not all companies will continue to generate this kind of growth.
That’s why investors should focus on larger companies with multiple growth catalysts over the long term. When it comes to technology, I believe Facebook (FB), Apple (AAPL), and Alphabet (GOOGL) certainly fit the bill, which is why I am highlighting them below.
Facebook Inc. (FB)
FB reported strong first-quarter earnings, blowing past expectations. The company grew revenue 48% year over year, with advertising revenue making up most of the sales growth. FB also generated 146% growth via virtual reality and its e-commerce initiatives. The company also grew its global monthly active user count 10% to 2.85 billion, with another 600 million visiting Instagram and WhatsApp monthly.
The company has plenty of catalysts that should continue to drive growth. FB continues to see traction in both online and mobile advertising spending. Instagram has also emerged as a cash cow for the company after debuting its ad platform. Both Messenger and WhatsApp present even more revenue opportunities once they are monetized. Plus, the company’s efforts in the augmented reality/virtual reality space bode well for future growth.
FB has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Sentiment Grade of A, which means the “Smart Crowd” likes the stock. Forty-five analysts rate the stock as a Strong Buy or Buy. FB also has a Quality Grade of A, indicating a solid balance sheet. The company generates significant cash flow, with a cash level of $64 billion as of the end of the quarter.
We also grade FB based on Growth, Value, Momentum, and Stability. You can find those grades here. FB is ranked #4 in the Internet industry. You can find other top stocks in the industry by clicking here.
Apple Inc. (AAPL)
AAPL recently reported earnings that crushed analyst estimates. The company’s product revenue soared 62% year over year, driven by robust demand for the iPhone, iPad, and Mac product lines. Mac computers even set an all-time revenue record. This was likely due to AAPL’s custom-built M1 chip that replaced Intel processors in the Mac Mini and MacBook.
The company’s services segment also delivered record results in the quarter. While its business mainly runs through its flagship iPhone, its service offerings, such as cloud services, App Store, Apple Music, AppleCare, and Apple Pay, are the new cash cow. AAPL currently has more than 660 million paid subscribers across its total services portfolio. Its subscription-based video streaming, news, and gaming services should benefit from this strong base of customers.
AAPL has an overall grade of B, which is a Buy rating in our POWR Ratings system. The company has a Sentiment Grade of A, as several analysts are high on the stock. For instance, the average analyst price target for AAPL is 152.06, which indicates a potential 15.7% upside for the stock. AAPL also has a Quality Grade of B due to a strong balance sheet.
Cash increased from $195.6 billion at the end of 2020 to $204.4 billion as of the end of March. The company even returned $23 billion to shareholders in the most quarter through dividend payouts and share repurchases. For the rest of AAPL’s grades (Growth, Value, Momentum, and Stability), click here. AAPL is ranked #20 in the Technology – Hardware industry. For other top-ranked stocks in this industry, click here.
Alphabet Inc. (GOOGL)
GOOGL reported its latest financial results last month, with earnings beating analyst estimates by a considerable margin. EPS came in at $26.29, compared with the consensus estimate of $15.82. Revenue was up 34% year over year to $55.3 billion, with operating income more than doubling. YouTube grew revenue 50% year over year, while sales from Google Maps and Gmail were up 30% year.
The company is increasing its presence in the Home Assistant space. The company’s Google Home product runs on GOOGL’s new voice assistant. With voice considered the next big thing in computers, this offering bodes well for future growth. GOOGL’s monopoly in online search isn’t going anywhere, as the company is seeing an increase in search queries.
The company is also gaining market share in cloud computing due to the strength of the Google Cloud Platform and G Suite offerings. GOOGL has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. The company has a Sentiment Grade of A, which isn’t surprising as forty-one Wall Street analysts rate the stock the Strong Buy or Buy.
GOOGL also has a Quality Grade of B, driven by strong profitability and efficiency figures. The company has a net profit margin of 26.1% and a return on equity of 22.3%. To see how GOOLG fares in Growth, Value, Momentum, and Stability, click here. GOOGL is ranked #1 in the Internet industry.
FB shares fell $0.47 (-0.15%) in after-hours trading Monday. Year-to-date, FB has gained 12.01%, versus a 12.15% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.