Short Amazon and Apple as they head into earnings season, say Itau BBA analysts
As corporate giants report their quarterly earnings updates in the coming days, one investment bank has suggested that investors bet against two Big Tech stocks. Analysts at Itau BBA, the largest investment bank in Latin America, said investors should short Apple and Amazon before their quarterly financial results are released on Oct. 31. Shorting is the process of borrowing shares to sell immediately, hoping to repurchase them later at a lower price and pocket the difference. Investors also often use options contracts to take a short position on a stock to limit losses or amplify returns. The investment bank said while the companies are financially sound, profitable and have good long-term growth prospects, their share prices have begun pricing in very optimistic scenarios that are unlikely to bear fruit. “Overall, our conviction level for this quarter is low, especially after a phenomenal year for many tech investors and with positioning not in favor of the names we like,” said Itau analysts Thiago Alves Kapulskis and Maria Clara Infantozzi in a research note to clients on Oct. 22 Apple The iPhone maker is set to report third-quarter figures next week. Analysts expect Apple’s latest feature, Apple Intelligence, to drive growth in iPhone sales, Apple’s flagship product. However, Itau analysts said Apple’s shares have “been performing well in a not-so-strong environment” and pointed to its elevated valuation levels. Apple stock now trades at 31 times price-to-next year’s earnings, compared to the stock’s five-year average of 26 times, according to FactSet. Kapulskis and Infantozzi added that the bank, on a scale of one to 10 with 10 representing strong conviction, has a conviction rating of six on the trade idea. “We like it as a funding to other ideas,” they said. AAPL 1Y line Amazon Itau analysts said the e-commerce giant’s profit margins will likely have peaked, which could lead to a sell-off after Amazon reports its quarterly earnings. “Despite consensus moving lower almost every day for the past 3-4 weeks, the stock has been reaching new highs,” said the analysts. “We have no confidence that retail margins will continue their way up and this could once again pressure the stock once again, especially if 3P [third-party sales] and advertising top lines do not recover.” However, they cautioned that Amazon’s cloud computing division should show “strong acceleration” and push the stock higher. For this reason, Kapulskis and Infantozzi said they ranked the trade idea three out of 10, adding, “our conviction level for AMZN is very low, but we would pick the short side this time.” AMZN 1Y line
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