Analysis: UPS GOOGL MSFT AMD

Bob Lang and Chris Versace look at the market, United Parcel Service (UPS) earnings, give their thoughts on what to expect from Alphabet (GOOGL) , Microsoft (MSFT) and Advanced Micro Devices (AMD) earnings after the bell, and discuss oil.

KATHERINE ROSS: Good morning Action Alerts PLUS members. It is Tuesday, October, 26. I'm Katherine Ross, and I am joined by Chris Versace and Bob Lang. Today we're going to be talking about UPS, what to expect from earnings after the bell, oil and more. But before we get to all of that, Bob, what is your technical take on this market?

BOB LANG: Well, another new all time high today, Katherine. Yesterday was quite a run. It looked like we were going to pull back quite a bit, but as we've been accustomed to for the past couple of weeks, the dip buyers stepped in and picked up the pieces.

We had good solid breadth, which has been lacking lately for the markets. And one of the reasons why the breadth has been so poor is because the broader market hasn't been participating as much as we would have liked. So the broader market, I would define as being, say, the Russell 2000. It hasn't really kept pace with the rest of the market, and of course 2000, stocks is going to move the breadth needle quite significantly.

But I think by and large, the price action has been a real positive, it's been robust, earnings have been pretty strong. And the reaction to earnings has been really good. I mean, when you look at a stock like Tesla yesterday, or more recently Netflix, came out with earnings that were somewhat disappointing at the outset. But then they came back and they're back up to new all-time highs. It's pretty remarkable how well that these stocks have performed.

But you know, when the money is flowing into equities and stocks, momentum is strong, you know there's just no fighting it. So at this point in time, trying to pick a top is really, frankly, you know I've always talked about tops and bottoms are a loser's game. Really the only top that matters is the last one.

And you know, anybody who keeps trying to pick tops is often going to be wrong, until after the fact. But I think the market is pretty healthy right now. We talked last week, hitting all-time highs could have stock markets make a move another 5% to 10% higher. And here we are entering into a seasonally strong period. So I like the stock market where it is right now.

KATHERINE ROSS: All right Chris, we got earnings from UPS. And you wrote about how we got very little, which is par for the course for the company, I do want to admit. But what have you learned from this quarter? I mean, I know that you're focused on supply chain, and what's your outlook on this stock? It's ripping and roaring today.

CHRIS VERSACE: You're absolutely right about UPS. And you know, look, it is a favorite during the holiday season. You know, Bob and I over at Trifecta, almost every time over the last several years, right around now, we've always either toyed with it or have actually added shares of UPS. Look, they're going to continue to benefit from really two key factors.

The first is the continued shift towards digital shopping, we could talk about all the reasons for that. But the reality is, it is happening. The second is pricing. And when we look in the September quarter, their average pricing per parcel was up about 13% year over year. That's going to drop a lot to the bottom line.

You know, the conference call is going on, I haven't heard anything yet about incremental pricing going to 2022. Which is really what I want to understand, try to determine how much extra upside might there be to the consensus expectations. So we can really figure out, do we move our price target higher. That's what I want to find out, Katherine.

KATHERINE ROSS: All right we got some big names reporting earnings after the bell, Chris. What are you expecting?

CHRIS VERSACE: Well it really depends on which one. So for Google, obviously we're going to want to understand what any impact iOS 15 has had on their search and advertising business. That is key for them, without a doubt. Second is going to be what are we seeing in terms of Cloud, are they gaining share, what's the pricing environment looking like, those would be the two big questions.

And that second one really carries over into Microsoft, with their own cloud business. Not so much worried about Microsoft 365 or Office, you know, I think those will be doing well given the upgrade cycle that we're seeing there. But also too, with Microsoft, Xbox and gaming, going into the holiday season, what are we seeing there?

And then finally, with AMD, Intel reported last week, it sounds to me like they have been gaining share. We're going to get that confirmation one way or another tonight.

KATHERINE ROSS: All right Bob, I want to turn your attention to big tech. First of all, what's your outlook? And I did ask you to pull the chart of Google, ahead of earnings, because of Chris's point about how Apple's new iOS will impact Google.

BOB LANG: So we heard a little bit about, a little bit of a preview, of how that iOS is affecting companies. Disrupting them somewhat, with Snap last week. Facebook also reported last night, and they didn't really talk so much about that on their call, rather other issues that they've been needing to address. So you know, it's a little bit early in the game here to see what the impact is on some of these companies.

But I suspect eventually these companies are going to have to talk about it. Because this is hindering the way they would be able to track ads, and so forth, and users. But as Chris said, it's an important part of their business, but it's the search business that really matters the most with Google.

And as we take a look at the chart of Google, we notice that the stock has been kind of floundering around here for the past couple of months in a range. It has been making a series of higher lows and lower highs in the chart here. But what I've circled down there on the volume bar is really important. You can see some of the red bars, you can recognize those as distribution days.

And those are days that the stock is down sharply on higher volume. That is a sign of institutional distribution. And that's not what we like to see, especially in a big cap name, in the name that we own in the Action Alerts PLUS portfolio.

Is it something to worry about? Not just yet. It may be some big money players getting out of the way, in front of earnings. If you take a look at the chart also, the last quarter earnings were real super and strong. And the stock went up over $100 the day after earnings. We're right back to where we were when the stock gapped up in July.

So the options market is pricing in about a 120 to 130 point move, following earnings coming out. So that's about roughly 4%, which is somewhat in line with normal pricing. Sometimes we get a little bit higher move than that. So I think that everything is in line right here for a good move. If earnings are good, earnings are strong, Chris will be talking about that. We could get a move back up over a $2,900 very easily.

KATHERINE ROSS: OK, so I have gotten a lot of questions about how you guys buy and sell stock specifically. So I want to move into this, because the one question that really stands out is whether or not there's a 45-minute window, where you guys wait, so the members can buy first. Which has been there for a couple of years now. So Chris, I want to start with you. Can you explain how you guys buy stocks?

CHRIS VERSACE: So I think we need to understand what was and what is, Katherine. I think that's the easiest way to describe it. In the past, there was a charitable trust associated with the Action Alerts PLUS portfolio. And it was because of that trust that there was a 45-minute window between an alert going out and the portfolio actually executing the trade.

With the charitable trust gone, Action Alerts PLUS has now reverted to what's being used by the other subscription services at TheStreet. Whether that's stocks under $10, and Trifecta, or some others out there. In which case, that 45 minutes is condensed down to about three minutes. And that's just the convention, and I can understand that some folks are a little caught off guard by this, some folks might be upset by it. But all we're doing is simply following the rules underneath the subscription services that are there.

KATHERINE ROSS: And Bob, when you guys are selling stocks, can you explain that process as well. I just want to get to the bottom of this, and I'm probably going to have a couple of follow-ups for you guys.

BOB LANG: So Chris and I get together, before we're ready to cut a stock, we get together and we talk about it. And we go through some very pointed analysis about whether this is a stock that we need to keep in a portfolio. This is something A, would we buy it today. And B, is it something that is going to be profitable for us and our subscribers over a period of time.

We try and marry the fundamentals, which Chris does an excellent job at covering, along with the technical analysis that I do, to see if it comes up with a story that allows us to stay with the name. And without any emotions involved here. And we don't interview CEOs on television, we don't make any particular calls to the company. Maybe Chris does some sometimes, but I think his analysis doesn't really need that.

I think by and large, we come to a conclusion that if a stock is going to be good for our portfolio, we'll stay with it, if not, we'll cut it. And you know, we'll either cut it short or else cut it out altogether. And again, no emotions here at all. This is not an emotional game here that we're trying to play. Emotions are good in the short run, in the long run, which is what our goals are for our subscribers, is to make good solid judgments based on our analysis.

CHRIS VERSACE: I think that's right Bob.

KATHERINE ROSS: All right, Chris.

CHRIS VERSACE: Let me just add to this Katherine, because I think it's important here. You know, Bob is 100% right. What we try our best to do is to let the data talk to us. And that's industry data, that's company-specific data, competitor data, customer data, and as well as historical valuations.

So when we added Deere yesterday, we tried to assess OK, what has been the peak PE multiple. What type of upside can we look forward to, what type of downside can we expect, where are we relative to that. And if we have to make some handicap decisions, again, in the case of Deere, because of potential supply chain issues or the current UAW strike, we'll do that so that we can have a conservative expectation for upside.

But again, there's a tremendous amount of data that we're going to, and when the data is favorable, we'll act that way. When the data is no longer favorable, or we have warning signs, that's when we'll start to take some action. Whether it's to slowly trim out a position, or if it gets really bad, really fast, due to some unknown, there may be times. Infrequent, I will say. But we'll do the right thing for subscribers to limit losses.

KATHERINE ROSS: OK, so using your example of Deere, Chris. We saw a lot of momentum go into that name after you guys published the alert. Now whether that's because of the AAP members seeing the alert or not, there was a lot of momentum, and the name moved up. If I miss that kind of move, what is your advice? What should I be doing as a member?

CHRIS VERSACE: So one, it would be wonderful to think that we have that type of impact on the market, but let's just say I doubt it.

BOB LANG: That's some power, isn't it?

CHRIS VERSACE: Yeah, yeah. There's probably some other positive, there is probably some other positive news out there. I know today there was some positive notes out on Deere, with people doing something similar to what we did, I'll just leave it at that.

But what we're going to do going forward, because we've had some questions on this is, up to what level should we buy a stock. That's why we said yesterday, look from $340 to $390, that's x percent upside, we're comfortable buying it up to the $350 level. The issue Katherine is, it popped over $350, so understandably subscribers were like, what do we do now.

Well, guess what. There was a lot of momentum in the name that you mentioned. We know that stock prices, they move forward, they move back. Now subscribers know that between $340, $350, that's the sweet spot that they should be buying the shares.

And as time goes on, and as the data improves, we have some clarity on the UAW strike. Maybe we'll have some upside to our $390 price target, I'm hoping that we do. But again, we're not going to front run that until we have the data that says the risk associated is declining. So $340 to $350, as I look at it right now Katherine, the stock's right around that level, so have at it.

KATHERINE ROSS: So in that case, if we do see momentum, and I'm going to get yelled at by my producer, but I just want to make sure that I'm getting enough clarity for our members. If we do see momentum in the name guys, and we do see a big move, is that a case where let's say you say buy between $340, $350, but the stock moves up to $380. Do I wait until it gets down to

CHRIS VERSACE: $340? $380, wow. That is a huge plus.

KATHERINE ROSS: I'm putting a hypothetical.

CHRIS VERSACE: Yeah no, no, no. I know, I know, I know. Look, at $380 would be way above the window that we've indicated, right. So I would suggest, at that point, it's very close to the price target. I would not suggest that people pile in at that level.

Either something has happened that would cause us to revisit that price target. Or it's just totally overdone and we have to look for another name.

BOB LANG: You know, I would also add there. I would add Katherine, that even though Chris laid out a very, very fine window there, from $340 to $350, say, as a good window to add yesterday. And if somebody missed that window, if we pull back a little bit, that should be fine.

On a technical basis, we'd like to see a higher low, if the stock has been making higher lows since it's moved past the lows of about $325, $327, something that we talked about last week. So even if it pulls back into the $340's range, you know I'd say it's still game for an add, if somebody missed out on it or somebody didn't get enough shares. They probably want to add a little bit more down there.

As long as it makes a higher low on the chart, that's what we like to see. A bullish trend is a series of higher highs and higher lows. And the stock has started to make higher highs, it did run into a little bit of resistance yesterday at the peak, at the highs of the day of $353. So it actually went up a little bit higher this morning, and it's retreated a little bit.

So if that opportunity that comes about, certainly we'd suggest taking advantage of it.

CHRIS VERSACE: Mm-hmm.

KATHERINE ROSS: And Bob, we're specifically talking about Deere, yes or no?

BOB LANG: That's correct. That was on Deere, yeah.

KATHERINE ROSS: OK. We don't have time left, but I want to ask this anyway. And Bob I'm going to keep you very tight, just like I timed Chris yesterday, I'm timing you now. People are asking whether or not you guys would add oil to the portfolio.

BOB LANG: Yeah so oil has had made a humongous run here. The crude chart we talked about it, first week, maybe have a good run up to about $95, $97. It looks like it's kind of stalling right here. I would probably pause at this point in time. I wouldn't be looking at adding any oil names. Maybe if some of these stocks come in again a little bit, we'll be taking a look at it again. But as of right now, no.

KATHERINE ROSS: All right, thank you guys for joining us today. And members, thank you for tuning in. I'm Katherine Ross. And please continue to send your member questions in to katherine.ross@thestreet.com remember that's only for on-air questions. Have a great day, we'll see you tomorrow.