4 Mega-Cap Tech Stocks Underperforming the S&P 500 in 2021: Apple, Microsoft, Amazon, and Facebook

NASDAQ: AAPL | Apple Inc. News, Ratings, and Charts

AAPL – The S&P 500 has started this year on a positive note after ending 2020 with decent returns despite the deep coronavirus-led sell-off in March. Even though some of the top index members, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Facebook (FB), have been underperforming the index so far this year, we think their impressive revenue and earnings outlook should help them outperform the index in the coming months.

The S&P 500 gained 18.2% last year, outperforming the Dow Jones Industrial Average’s (DJIA) 8.6% returns. But the index lagged the tech-heavy Nasdaq, which gained 46.4% over the same period thanks to a boom in tech stocks. But the S&P 500 has begun 2021 on a positive note, and closed Friday’s trading session at $3,824.68 after hitting its all-time high of $3,826.69. It has gained 2.5% so far this year, and is expected to climb 13% in 2021.

While the benchmark for the broader market has been hitting new all-time highs, some of its top members, the tech giants, have underperformed so far this year. But because investors are  hopeful about the gradual recovery of the economy with the successful roll out of coronavirus vaccines, they are shifting some of their investments from these tech players to stocks from industries such as  green energy, industrials, and healthcare that are expected to perform well with an economic recovery.

Moreover, the expected intensification of antitrust scrutiny of  tech giants like Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com, Inc. (AMZN), and Facebook, Inc. (FB) under the Biden administration appear to have raised investors’ concerns about their investments in these stocks. However, we think this dip could be a buying opportunity because these companies are expected to play an important role in the ongoing digitalization.

Apple Inc. (AAPL)

The iPhone maker AAPL has a market capitalization of $2.25 trillion. The company  executed  several developments last year, from launching the Apple TV app on select LG, Sony, and VIZIO smart TVs, and PlayStation and Xbox consoles, to delivering “curated world-class journalism” through Apple News. Nevertheless,  its iPhone 12 launch dominated last year. AAPL has also been making headlines because of its new privacy policy. The company has 6.7% weightage in the S&P 500 index. AAPL has lost 0.5% so far this year.

The company’s total net sales increased 8.4% sequentially to $64.7 billion for its fiscal 2020 fourth quarter ended September 26, 2020. While product sales increased 7.8% sequentially to $50.1 billion, services revenue increased 10.6% sequentially. Its net income increased 12.6% sequentially to $12.7 billion, yielding EPS of $0.73, which surpassed the Street estimate by 4.3%.

Analysts expect AAPL’s revenue to increase 15.6% for the quarter ended December 30, 020, 15.1% in the current year, and 5.3% next year. The company’s EPS is expected to increase 37.5% for the quarter ending March 31, 2021, 21.6% in 2021, and at a rate of 12.7% per annum over  the next five years. AAPL has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters.

Apple Fitness+, the company’s first fitness experience built around Apple Watch, became available on December 14. It incorporates key workout metrics from Apple Watch directly to iPhone, iPad, and Apple TV for its variety of users. On the same date, AAPL announced that with iOS 14.3 and watchOS 7.2, Apple Watch users can view their cardio fitness level in the Health app on iPhone and receive a notification on Apple Watch if it falls within the low range.

Since mid-December, the company started taking orders for its AirPods Max which is available in five colors — space gray, silver, sky blue, green, and pink. The stock has gained 74.2% over the past year to close Friday’s trading session at $132.05.

How does AAPL stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

A for Overall POWR Rating

The stock is also ranked #1 of 54 stocks in the Technology – Hardware industry.

Microsoft Corporation (MSFT)

Satya Nadella led MSFT in a well-known established leader in the technology space. The company develops, licenses, and supports a range of software products, services, and devices. Its cloud computing arm, Microsoft Azure, is an emerging leader in the field. With a market cap of $1.66 trillion, MSFT is the second largest stock in the S&P 500 index. It has a 5.3% weighting in the index. Over the past year, the stock has gained 37.2% and is currently trading 5.7% below its 52-week high. The stock has lost 1.3% since the beginning of this year.

MSFT’s top line increased 12.4% year-over-year to $37.2 billion for the quarter ended September 30, 2020. Office Commercial products and cloud services revenue increased 9% year-over-year driven by Office 365 Commercial revenue growth of 21% year-over-year. Also, server products and cloud services revenue increased 22% year-over-year. Net income increased 30.1% year-over-year to $13.9 billion, while EPS increased 31.9% year-over-year to $1.82.

Analysts expect MSFT’s revenue to increase 8.9% for the quarter ended December 30, 2020, 10.7% in 2021, and 10.9% in 2022. The company’s EPS is expected to grow 17.4% this year, 10.5% next year, and at a rate of 14.6% per annum over the next five years. The company’s earnings surprise history looks impressive; it  beat the consensus estimate in each of the trailing four quarters.

In partnership with AT&T Inc.’s (T) Warner Bros., MSFT launched a campaign in December in which it  assembled a team with Xbox, LeBron James, Bugs Bunny and the rest of the Looney Tunes Tune Squad to celebrate the coming release of the new movie “Space Jam: A New Legacy.” The campaign continued until December 30, at which time fans had to submit their video games ideas. The campaign was undertaken to amplify coding education and create an original Xbox arcade-style video game inspired by the movie.

On December 9, MSFT announced an expansion of their partnership with Deutsche Telekom Group to  accelerate  cloud transformation initiatives, leveraging MSFT’s cloud and AI capabilities with Telekom’s Cloud Migration Framework and telecommunications services.

MSFT’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, and Buy & Hold Grade, and a “B” for Peer Grade, and Industry Rank. Among the 121 stocks in the Software – Application industry, it is ranked #1.

Amazon.com, Inc. (AMZN)

Founded in 1994, AMZN is the world’s largest online retailer with a market cap of $1.63 trillion. The company operates primarily through three segments — North America, International, and Amazon Web Services (AWS). In addition to being a  market leader in the cloud computing segment, AMZN has also ventured into various spaces, most recently  into the healthcare segment with the launch of Amazon pharmacy in November. The company has 4.4% weighting in the S&P 500 index. The stock has declined 2.3% year-to-date.

For the third quarter ended September 30, 2020, the company’s net sales increased 37.4% year-over-year to $96.1 billion. AMZN’s Amazon Web Services (AWS) dominates the cloud computing segment, and net sales from AWS increased 29% year-over-year to $11.6 billion. Net sales from North America, which accounted for nearly 62% of total  net sales, increased 39.2% year-over-year to $59.4 billion. Its net income increased 196.7% year-over-year to $6.3 billion. EPS increased 192.4% year-over-year to $12.37.

Analysts expect AMZN’s revenue to increase 36.7% for the quarter ended December 30, 2020, 26.3% for the quarter ending March 31, 2021, and 18.3% in 2021. The company’s EPS is expected to grow 84% for the quarter ending March 31, 021, 30.1% in 2021, and at a rate of 36.4% per annum over the next five years. AMZN’s earnings surprise history looks impressive, with the company missing the consensus estimate in just one of the trailing four quarters.

As a move to expand its transportation fleet, on January 5, AMZN announced its first-ever purchase of 11 Boeing 767-300 aircraft. And on December 22 it  announced its plans to open its first fulfillment center in the state of Louisiana in Carencro, and two new fulfilment centers and a new delivery station in San Antonio, Texas. Over the past year, the stock has rallied 68.2% to close Friday’s trading session at $3182.70.

It is no surprise that AMZN is rated “Buy” in our POWR Ratings system. It also has a “B” for Trade Grade, Buy & Hold Grade, and Industry Rank. In the 71- stock Internet industry, it is ranked #20.

Facebook, Inc. (FB)

Based in Menlo Park, California, FB is one of the most famous companies in the social media space. The company’s products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. FB’s growth is mainly driven by advertising revenue, and strategic acquisitions made over the years. It has a market cap of $768.44 billion and is ranked fourth in the S&P 500 index with a weighting  of 2.1% in the index. FB has lost more than 2% so far this year.

The company’s revenue climbed 21.6% year-over-year to $21.5 billion for the third quarter ended September 30, 2020. Advertising revenue increased more than 22% year-over-year to $21.2 billion. Average Revenue per User (ARPU) increased 8.7% year-over-year to $7.89, while monthly Active Users (MAUs) increased 12% year-over-year to 2.74 billion. Net income increased 28.8% year-over-year to $7.8 million, yielding EPS of $2.71, which increased 27.8% year-over-year.

Analysts expect FB’s revenue to increase 24.7% for the fourth quarter ended December 31, 2020, and 23.9% in 2021. The company’s EPS is expected to increase 24.6% for the fourth quarter, 12.2% in 2021, and at a rate of 16.6% per annum over the next five years. FB’s earnings surprise history looks impressive, with the company missing the consensus estimate in just one of the trailing four quarters.

On January 6, FB launched redesigned Facebook Pages that make it simpler for users to build community and achieve their business objectives. The improvement is characterized by a redesigned layout, dedicated news feed, and actionable insights, among changes. The company also launched a carts feature on WhatsApp in early December, to make buying and selling easier. The stock has gained 24.3% over the past year and is currently trading 12.2% below its 52-week high of $304.67.

FB’s strong fundamentals are reflected in its POWR Ratings, it has a “Buy” rating with a “B” in Buy & Hold Grade, and Industry Rank. Within the Internet industry, it is ranked #21.

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AAPL shares were trading at $129.48 per share on Monday afternoon, down $2.57 (-1.95%). Year-to-date, AAPL has declined -2.42%, versus a 1.55% rise in the benchmark S&P 500 index during the same period.


About the Author: Manisha Chatterjee


Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...


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