1 Stock to Buy, 1 Stock to Sell This Week: Amazon, PayPal

U.S. stocks ended higher on Friday, capping a volatile week on a positive note after a moderate U.S. inflation report fueled optimism about a fall interest rate cut by the Federal Reserve.

Despite the upbeat results on Friday, the stock index and the technology company ended the week in the red for the second week in a row, losing 0.8% and 2.1%, respectively.

Source: Investing.com

Those stocks outperformed, gaining 0.8% to post their fourth straight week of gains, while small-cap focused stocks rose 3.5% as investors appeared to be part of a rotation away from technology leaders toward small-cap and cyclical stocks.

The coming week is expected to be packed with market-moving events, including a key Federal Reserve monetary policy meeting, a closely watched jobs report and a flurry of earnings from major technology companies.

The U.S. central bank is widely expected to leave interest rates unchanged on Wednesday, but Federal Reserve Chairman Jerome Powell may provide hints about when rate cuts could begin during his post-meeting news conference.

Markets see less than a 5% chance of a rate cut at this week’s meeting, but are fully pricing in a cut in September, according to Investing.com. Traders still largely expect two rate cuts by December.

Source: Investing.com

Aside from the Fed, the highlight of the economic calendar will be Friday’s U.S. jobs report for July, which is expected to show the economy added 177,000 jobs, shedding compared with a gain of 206,000 in June. The unemployment rate is expected to hold steady at 4.1%.

Meanwhile, earnings season is in full swing, with four of the giant “Magnificent Seven” tech stocks set to report their latest numbers. Microsoft (NASDAQ:) reports Tuesday evening, Meta Platforms (NASDAQ:) on Wednesday, while Apple (NASDAQ:) and Amazon (NASDAQ:) are due to report late Thursday evening.

Joining these large-cap stocks will be giants like Advanced Micro Devices (NASDAQ:), Intel (NASDAQ:), ARM Holdings (LON:), Qualcomm (NASDAQ:), Coinbase (NASDAQ:), PayPal (NASDAQ:), Boeing (NYSE:), ExxonMobil (NYSE:), Chevron (NYSE:), Mastercard (NYSE:), Starbucks (NASDAQ:), McDonald’s (NYSE:), Pfizer (NYSE:), and Procter & Gamble (NYSE:).

Regardless of which way the market goes, below I highlight one stock that will likely be desirable and another that could see a new decline. But remember, my time frame is Just for the coming week, Monday, July 29 – Friday, August 2.

Stocks to buy: Amazon

I expect strong results from Amazon this week as the tech giant looks set to post another quarter of solid revenue and profit growth, and provide a positive outlook thanks to continued strength in its cloud computing, e-commerce and advertising businesses.

The Seattle, Washington-based company is set to report its second fiscal quarter after the U.S. market closes on Thursday at 4:00 p.m. ET, and sell-side confidence is high. A call with CEO Andy Jassy is scheduled for 5:30 p.m. ET.

Market participants are expecting significant price volatility in AMZN shares following the report’s release, in line with options market forecasts, with a possible move of around 8% in either direction.

In a sign of growing optimism, analysts made significant upward revisions to their EPS estimates in the weeks leading up to the earnings report, according to exclusive data from InvestingPro. Interestingly, 25 of the last 28 EPS revisions were upwards, reflecting growing confidence in the e-commerce and cloud giant’s financial performance.

Source: InvestingPro

Consensus is for Amazon to report earnings of $1.02 per share, up 56.9% from earnings of $0.65 per share in the second quarter of 2023, as the company’s focus on innovation, including investments in automation, is expected to drive operational efficiency. Revenue is expected to rise 10.6% from the same quarter a year earlier to $148.6 billion.

As always, much of the focus will be on the performance of Amazon’s cloud unit to see if it can maintain its growth momentum. Amazon Web Services revenue rose 17% in Q1 to $25 billion. Amazon’s AWS is widely considered the leader in the cloud computing space, ahead of Microsoft Azure and Google (NASDAQ:) Cloud.

But as is often the case, it’s more about guidance than results. With that in mind, I think Amazon’s management team will provide an optimistic outlook for the coming months as the company continues to build on its leadership in e-commerce, advertising, cloud computing, and retail.

AMZN shares ended Friday at $182.50, just below their all-time high of $201.20 set on July 8. With a valuation of $1.9 trillion, Amazon is the fifth-most valuable U.S.-listed company. The stock has far outperformed the broader market this year, rising about 21%.

Source: Investing.com

Notably, InvestingPro’s AI-powered models have given Amazon a near-perfect financial health score of 4.0 out of 5.0, underscoring prospects for strong earnings and sales growth.

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Shares for sale: PayPal

I predict that the coming week will be disappointing for PayPal, with a potential breakout to new lows on the horizon as the struggling digital payments provider’s earnings and forecasts are likely to disappoint investors due to a combination of unfavorable trends in consumer spending and customer demand.

PayPal’s second-quarter earnings report is due before the open of trading Tuesday at 7:30 a.m. ET. Results are likely to be hurt by a slowdown in the company’s core e-commerce business as the company continues to lose market share in online payments.

Not surprisingly, according to InvestingPro research, earnings estimates have been revised down 29 times in the past three months, while there has been only one upward revision.

Based on movements in the options market, investors are pricing in a possible 9.1% change in PayPal stock value in either direction following the update’s release.

Source: InvestingPro

Wall Street sees the digital payments processor earning $0.98 per share, down 15.5% from $1.16 in the same period a year earlier. Revenue, meanwhile, is expected to rise 7.2% from a year ago to $7.84 billion.

Looking ahead, I believe PayPal CEO Alex Chriss will be conservative in his guidance for the rest of the year given the challenging operating environment.

The fintech company faced significant headwinds last year due to a combination of slowing consumer spending and e-commerce trends, as well as increasing competition in the mobile payment processing industry from the likes of Apple, Google, Amazon and Block (NYSE:).

PYPL shares closed Friday at $58.29, just shy of their 2024 low of $55.77 hit on Feb. 8. At current levels, the San Jose, California-based company has a market capitalization of $61 billion. Shares are down 5% year to date, far less than the broader market over the same period.

Source: Investing.com

It should be noted that PayPal recently earned an InvestingPro Financial Health rating of 2.51 out of 5.0, which is below average, due to concerns about its earnings growth prospects and free cash flow.

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Disclosure: At the time of writing, I am long the S&P 500 Index and via the SPDR Index S&P 500 ETF (SPY) and Invesco QQQ Trust ETF (QQQ). I am also in a long position Technology Select Sector SPDR ETF (NYSE:).

I regularly rebalance my portfolio of individual stocks and ETFs based on the current assessment of risks, both in the macroeconomic environment and in corporate finances.

The views contained in this article are solely the opinions of the author and should not be construed as investment advice.

Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insights.