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Stocks Pick of The Week - Tech Investors Eye Opportunities Amid Fed's Hike Hints and Inflation Surprises

Written by Fullerton Research | Sep 18, 2023 9:11:41 AM

The producer price index for August outpaced expectations, surging by 0.7%, exceeding the anticipated 0.4% increase. However, the core producer price index (PPI) is aligned with the projected 0.2% rise when excluding food and energy.

In a related development, the August consumer price index (CPI) data showed that core CPI, excluding food and energy, ran slightly hotter than anticipated.

The retail sales report for August brought a pleasant surprise, with a 0.6% increase, surpassing economists' expectations of a mere 0.1% rise. Retail numbers also outperformed forecasts, excluding automobile sales, showing a 0.6% gain compared to the expected 0.4% increase.

While the Federal Reserve is widely expected to maintain its current policy course during its September meeting, the European Central Bank took a different route by raising rates by the expected quarter-percentage point. However, the ECB's statement indicated a potential easing of inflationary pressures and hinted after its rate-hiking campaign.

Amazon: Positive Outlook Amid Strong Retail Performance

Amazon's strategic efforts to enhance profitability have significantly boosted its stock, which surged by over 70% this year.

The potential for further stock gains of about 10% to 20% hinges on the continued profitability improvement in Amazon's North American retail segment.

This development underscores the company's successful return to profitability in its retail operations. After substantial investments during the early stages of the pandemic to meet soaring demand, Amazon has been focusing on cost efficiencies in 2023.

Despite this progress, Amazon's North American retail business margins have not recovered to pre-pandemic levels. However, cost reductions in shipping and fulfilment, disciplined spending on Prime Video content, and improved margins on first-party merchandise represent key levers that Amazon can employ to achieve its goals.

Apple: Potential Institutional Investment Upside

Apple's recent product announcements, including the iPhone 15 and an updated Apple Watch, largely met analyst expectations.

One noteworthy change is the $100 price increase for the Pro Max iterations, achieved by eliminating the previous 128 GB Pro Max model.

The upgrades, particularly in the Pro models' photo capabilities and the new double-tap feature in the Apple Watch, are expected to drive robust holiday sales. Notably, Apple currently stands as the Big Tech stock with the lowest institutional ownership.

According to data from Morgan Stanley, this situation represents the highest degree of under-ownership since 2008. Institutional portfolios have notably shifted away from Microsoft over the past four years, making Apple the most under-owned mega-cap stock coming out of the second quarter.

Tesla: Attractive Investment Amid Autonomous Driving Developments

Tesla's progress on the Dojo supercomputer, designed to support autonomous driving, has garnered attention.

The success of Dojo could disrupt growth or profitability expectations for competing autonomous driving systems.

Investors are now closely monitoring advancements in the path to autonomous driving and identifying companies that may play pivotal roles despite the full realisation of such products likely remaining distant.

Fullerton Markets Research Team

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