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Amazon's 'strong technicals' make it stand out: Strategist

The stock market has been driven by the outperformance of the Magnificent 7 stocks. But is it too late to buy these stocks? And if so which one should you buy? Freedom Capital Markets Chief Global Strategist Jay Woods joins Yahoo Finance’s Julie Hyman on Good Buy or Goodbye.

Woods calls Amazon (AMZN) a "good buy," citing bullish technicals, reasonable P/E ratio, and strong e-commerce and cloud businesses. Tesla (TSLA) didn’t seem to make the cut—Woods states the biggest drawbacks are the downtrending stock chart, delays and disappointments launching the Cybertruck, and recent earnings disapointments,

To see more Good Buy or Goodbye, click here.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript


JULIE HYMAN: It's a big, noisy universe of stocks out there. Welcome to Good Buy or Goodbye, brought to you by Etrade from Morgan Stanley. Our goal-- to help cut through that noise, to navigate the best moves for your portfolio. The so-called Magnificent Seven have dominated the equity market this year. Each of them has risen by at least 50%. So is it too late to get in on the action? And if not, which one should you buy? And by the way, which one should you avoid? I'm here now with Jay Woods, Freedom Capital Markets chief global strategist. Thanks for being here. Really appreciate it.

JAY WOODS: Hello. Yeah. Great to be here.

JULIE HYMAN: So let's get to your Good Buy, first of all, your one you are buying if we're talking about Amazon in this particular case here. So that's your Good Buy. Let's talk about some of the reasons why you like the stock. And since it's you, Jay, no surprise--

JAY WOODS: Shocking.

JULIE HYMAN: --you're starting with the technical. So I'm going to call up a chart here of the one-year performance of Amazon. And talk us through what looks good from a technical perspective.

JAY WOODS: Over the last year, it's just gone in a nice straight uptrend. There we go. And it continues to trade at 52-week highs. You mentioned at the top of the show that stocks in the Magnificent Seven are up 200% in the case of Nvidia. And some are lagging, only up 45%.


JAY WOODS: Only up 45%. And Amazon just happens to be one of those stocks. And Amazon, what we like to do in technical analysis, when in doubt, back it out. So what do I have next is a five-year chart. Now let's look at this in perspective. Where were we at the beginning of 2022? We were right at this level. What did we just do? We just broke out at this 145 mark and just made back what we lost over the last two years. So we've come around about. But we haven't made new highs. I think it's set up not just to hold this level, but to go back and challenge the new highs like we've seen in other Magnificent Seven stocks like Microsoft, Nvidia, Apple, and Meta.

JULIE HYMAN: And is that what tends to happen when you see this kind of activity?

JAY WOODS: Yeah. This is what we like to call a nice rounded base with a cup and saucer handle I think Sarge did this on Wednesday for everybody. So when you see this pattern and it break out and it has something to reverse and then you look at the story overall, to me, the setup is there for Amazon to be one of the best stocks performing wise in the Magnificent Seven for the next year.

JULIE HYMAN: OK. So we looked at it from the technical perspective. Let's talk about what else here. The PE ratio, the price to earnings ratio. Now, for Amazon, it's, what, in the upper 60s?

JAY WOODS: It's 67.

JULIE HYMAN: That sounds high. But you have to look at history.

JAY WOODS: Exactly. Historically, Amazon has always had a high PE ratio. And I'm not a PE ratio kind of guy. But for a Magnificent Seven stock, it has the second highest PE of the seven. And that's what we're talking about. So when someone says, well, it has a PE ratio of 67 and Apple's only at 31, Microsoft's in the low 30s, Nvidia is just under 40, well, historically, 67 is at the five-year low of its average. So I would throw that out the window if a skeptic says, well, the PE ratio is too high. I look at the technicals first, the fundamentals second, and then, third, I think we're going to talk about some of those.

JULIE HYMAN: Yes. Let's talk about some of the other fundamentals. Let's talk about how Amazon's fundamental business is doing. How is it doing by your estimation?

JAY WOODS: Well, if you drive home and try to get through my neighborhood, it's doing quite well. The vans are everywhere you go. But we saw strong Cyber Monday and Black Friday sales. That's good. And then they just made an announcement this week about pivoting with their Whole Foods acquisition. Remember, they acquired Whole Foods like five years ago. Yeah.

Well, now for $9.99 a month for those Prime subscribers, you can get unlimited deliveries for $9.99 a month if you pay over $35 or more per delivery. And I think in New York, we're safe to say that. So they're expanding in the food business. And I think that is a setup. And then we haven't even talked AI or cloud or AWS. Just from a delivery standpoint, they continue to compete. They continue to eat everybody's lunch and dinner in this case because they're having it delivered. And they're eating it too. So the stock is hitting on all cylinders.

JULIE HYMAN: Gotcha. OK. So as always, we like to talk about what could maybe go wrong with your bullish thesis here. And in this case, you're looking at maybe there are some questions about consumer spending going into next year.

JAY WOODS: Yeah. The macro environment. I think is what's going to cloud Amazon. And right now, I kind of like the macro environment. So it's hard for me to say that there's going to be a pullback. You have the technical. You have a good risk-reward set up as a technician, as someone that's trading the stock. OK. If it breaks back below the 50-day moving average, maybe get out and wait.

But if the macro environment does slow down, if the consumer starts to pull back, then maybe we'll see a shift in sentiment towards the way people use Amazon. But right now, they've already shifted down the next step, which is buy now, pay later. And we're seeing it with Affirm, which you can use Affirm when you now go to Amazon and shop. Instead of paying that credit card and that 28% to 30% on the credit card, you buy now, pay later. So those are the risks, if the consumer pulls back, if there's a twist in the economy we won't see coming. But right now, I think it's pretty safe to buy over the long term.

JULIE HYMAN: And before we get to your Goodbye, just quickly, you're long Amazon?

JAY WOODS: I have no position. But I would tell my mom to buy it. And if I can tell my mom to buy it, then I feel comfortable.

JULIE HYMAN: OK. Fair enough. All right. Let's get to your Goodbye. And this is one of the most divisive, I think, on the Street, especially in the Magnificent Seven. We're talking about Tesla. And here, too, I think we're going to start with the technicals, right, when it comes to Tesla. So I'm just going to hop right to this one-year performance.

JAY WOODS: Yeah. And the technicals are showing us what? We had a nice rally in the beginning of the year. And now what do we have? A consistent downtrend. And what we don't see in this chart is the gap from earnings. As we came into last quarter's earnings, price actually led. Price broke down before they reported their quarterly report. And then we had the sell off. It's making its way back.

Now, this is a horrible downtrend line. My finger really doesn't do it justice. But the stock over the long term is still in a downtrend. Yes, it's up 97% for the year. It's been phenomenal. But look where we were coming from. It had one of its worst years in 2022. It made a lot of it back. But unlike the other in the Magnificent Seven, it hasn't made it all back. It's still 20% off of its 2022 peak. It's 40% off of its all-time high. And it's struggling to find that next catalyst to take it higher.

JULIE HYMAN: Well, OK, so is the next catalyst--

JAY WOODS: Well, there's your five-year chart.

JULIE HYMAN: Actually, while we're here, we'll look at this chart real quick. And then we'll get to the next. So talk about this chart real quick.

JAY WOODS: Well, what we want to do is look at the long-term effects. And like I said, it's 20% off of its 2022 high, 40% off of its all-time high. It does have room to reverse. But it's consistently making higher lows. And that, to me, is a little concerning. And then you look at this. If you want to round it out-- now, once again, my finger not doing the greatest charting here. It looks a little toppy to me. It's broken key weekly moving averages. And that is concerning.

JULIE HYMAN: OK. So let's get to the next thing then. And that's the Cybertruck. You were disappointed by the Cybertruck. You didn't think it was awesome?

JAY WOODS: It looks like something I made in Cub Scouts at the Pinewood Derby back in those days. But besides my personal disappointment in how it looks, the rollout has been delayed. And that has been a consistent problem with a lot of Tesla's products. It's a lot of hype, a lot of people excited about what's coming. But the Tesla Semi. Trucking was going to change. They've only rolled out one.

The Cybertruck, the rollout was less. And then when they rolled it out, it was supposed to be 500 miles per charge, it was 340 miles per charge. And then the cost was much more than they anticipated, between 799 and 999. That is not going to bode well for a consumer that has a strong appetite for Elon Musk and his products. There's no denying that. But right now, the rollout isn't there. And the more it's delayed, the more the stock could struggle.

JULIE HYMAN: Yeah. There's more talk, more demand maybe for a mass product, which we're not seeing yet from Tesla. And then let's talk about earnings from Tesla. What have you been seeing there?

JAY WOODS: Well, they've missed two of the last three quarters. And that's a little bit concerning. Last year, they were supposed to have about $6 EPS over the year 2023. It came in about half of that. So that is a trend that you don't want to see continue. So, to me, that's concerning. And then on the earnings call, when someone who I respect more than anybody, Dan Ives, who's one of the biggest Tesla bulls, says that call, that earnings call was a, quote, unquote, "disaster," that's got my antenna up. Now, Dan is much more bullish on it and thinks the stock is going to rebound. And I hope it does. I really do. But right now, there are more concerns than positives. And this is one that I would avoid for that reason.

JULIE HYMAN: OK. What could go right for Tesla?

JAY WOODS: Well, Elon Musk. How can you ever count out Elon Musk? I hate that I'm criticizing this stock in this segment because, one, you're going to get killed on Twitter for it. That's just what happens with Tesla. And two, I am a big believer. And the cars are amazing. But right now, the rollout continues to be slower. But Elon Musk always pulls something out of his hat, whether it's--

JULIE HYMAN: Sometimes it's a good thing. And sometimes it's not.

JAY WOODS: We're waiting for self-driving cars. If we can get those self-driving cars, then, boom, we're going to see a huge jump in it. But every big discovery, every next thing, it keeps getting delayed and delayed. And people are getting tired of hearing these great promises and not getting results as he tries. Maybe he's too concerned about other things. And then the other concern is, does he have to sell more shares of the stock because of his X and Twitter problems? So we'll see.

JULIE HYMAN: That's a good question. Just quickly, position in Tesla?

JAY WOODS: No position in Tesla.

JULIE HYMAN: No position in Tesla. OK. So Jay, we're going to sum up what you have told us here today. You would buy Amazon based on bullish technicals, including recommendation for Jay's mom, a PE ratio that is historically not high compared with Amazon's own history, and solid fundamentals. On the other side, you're saying avoid Tesla based on its bearish technicals, some lackluster updates on new and upcoming vehicles, including the Cybertruck, as well as a downtrend in earnings. Jay, thank you so much.

JAY WOODS: Thank you.

JULIE HYMAN: Third episode here of Good Buy or Goodbye. Thank you so much for watching. Of course, we're going to be bringing you new episodes three times a week at 3:30 PM Eastern. Tune in on Monday.