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1 Stock To Buy, 1 To Dump When Markets Open: Pinterest, Tencent Music

Published 25/07/2021, 13:10
Updated 02/09/2020, 07:05

Stocks on Wall Street rallied on Friday, with the Dow Jones Industrial Average climbing above the 35,000 level on a closing basis for the first time ever as strong corporate earnings and signs of economic revival fueled investor risk appetite.

Dow Daily Chart

U.S. stocks could face more volatility in the week ahead as Q2 earnings season kicks into high gear, with reports expected from the mega-cap tech stocks, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Google-parent Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB), and Tesla (NASDAQ:TSLA).

To make the coming week even more interesting, other high-profile companies, such as Boeing (NYSE:BA), McDonald’s (NYSE:MCD), Caterpillar (NYSE:CAT), General Electric (NYSE:GE), 3M (NYSE:MMM), Visa (NYSE:V), Mastercard (NYSE:MA), Pfizer (NYSE:PFE), United Parcel Service (NYSE:UPS), and ExxonMobil (NYSE:XOM) will also be reporting.

Add to that a key Federal Reserve monetary policy meeting, as well as important second quarter growth data, and we're in for an interesting time.

That said, no matter how the markets react, we've highlighted one stock likely to be in demand in the coming days and another which could see fresh losses. 

Remember though, our timeframe is just for the week ahead.

Stock To Buy: Pinterest

Pinterest (NYSE:PINS) will pique interest this week, as investors await the latest financial results from the social media network, which is scheduled to report earnings on Thursday, July 29 after the closing bell.

It has beaten Wall Street’s expectations for profit and sales for four consecutive quarters, thanks to its rapid user growth, which has translated into higher advertising revenue.

Consensus calls for the tech company to post second quarter earnings per share (EPS) of $0.13, substantially improving from a loss of $0.07 per share in the same period a year earlier.

Revenue is forecast to more than double from the year-ago period, soaring 106% to $562 million, driven by strong advertiser demand as well as positive returns from its ongoing international expansion.

As such, investors will focus on Pinterest’s update regarding global monthly active users (MAUs) to see if it can maintain its torrid pace of growth even as coronavirus-related restrictions recede. Global MAUs surged 30% year-over-year to 478 million in the last quarter.

In addition, investors will pay close attention to comments from Pinterest’s management regarding their sales and user-growth outlook for the third quarter.

Pinterest Daily Stock Chart

Pinterest—which was one of the big winners of 2020—has seen its ascent slow this year, with shares climbing just 16.7%, as investor sentiment cooled on some of the high-growth tech shares which rallied throughout the COVID-19 pandemic.

PINS stock—which is still up 213% in the last 12 months—ended Friday’s session at $76.91, giving the San Francisco, California-based image-sharing social media platform a market cap of around $49 billion.

At current levels, it remains about 15% below its recent record of $89.90 reached on Feb. 16.

Stock To Dump: Tencent Music Entertainment

Shares of Tencent Music Entertainment Group (NYSE:TME), the largest streaming music company in China, look set to remain under pressure amid worries over the negative impact of ongoing scrutiny by Chinese authorities to crack down on the country’s tech behemoths.

TME stock—which has fallen 31% in the last month and 44% year-to-date—ended at a fresh 52-week low of $10.78 by close of trade on Friday. It now stands more than 66% below its all-time high of $32.20 touched on Mar. 23.

At current levels, the Shenzhen-based online music streaming service—which made its debut on the U.S. stock exchange after going public in late 2018 at $13 per share—has a market cap of roughly $55 billion.

Tencent Daily Stock Chart

The latest negative news came after China’s State Administration for Market Regulation (SAMR) on Saturday ordered Tencent and its affiliated companies to give up their exclusive music licensing rights.

Tencent and its affiliates—which own more than 80% of exclusive music copyright agreements in China—will not be allowed to hold music licensing rights anymore, the regulator said, while existing agreements must be terminated within 30 days.

It also fined the internet company for engaging in anti-competitive behavior in China’s digital music industry, in which a music copyright is the core asset, citing violations connected to its acquisition of China Music in 2016.

Tencent Holdings Ltd (HK:0700) ADR (OTC:TCEHY) and Tencent Music Entertainment Group, the unit created from the acquisition, said they would abide by the decision and comply with all regulatory requirements.

The new policy is the latest in an ongoing months-long campaign by China’s market regulator to rein in the country’s tech giants that have grown to become some of the most valuable companies in the world, such as Alibaba (NYSE:BABA), and Didi Global (NYSE:DIDI).

Ultimately, market players are worried that policymakers in Beijing will further escalate their attempts to constrain in the country’s wealthiest business leaders and implement new restrictions meant for the government to regain control of the tech sector.

Taking that into consideration, TME shares look set to remain on the defensive in the days ahead as the online music streaming platform faces tough regulatory challenges ahead.

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