TOP 3 stocks in February 2024

Will Alibaba climb back to the top?

A few years ago, Alibaba was the showcase of the Chinese market and one of the biggest darlings of foreign investors. Alibaba offered huge revenue growth and its position in the Chinese market was extremely strong. However, this is what proved fatal. The move by Chinese regulators against monopolies, the botched IPO of Ant Group, the disappearance of founder Jack Ma together with covid pandemic dealt the company a huge blow. And Alibaba has not yet recovered from it. With that said, let us look closer at the current situation in the Chinese economy as it might give us the much-needed context.

China has been in deflation for four months in a row, and there is no light at the end of the tunnel yet. Long-term deflation is like a disease. Moreover, it threatens this year's target for Chinese GDP growth - 5% growth seems unrealistic in this situation. So it is not surprising that investors are pulling their money out of the Chinese market en masse, preferring to invest in Japan and India. The crisis came to a head this January when Hong Kong's Hang Seng stock index hit some of its lowest levels since 2009. Alibaba shares then plunged to their lowest since 2015.
 

_{Evolution of Alibaba shares on D1 chart in MT4 platform}

So it is no wonder that China has launched significant measures to support stock markets and economies in general. The central bank has cut reserve requirements for banks, which should add more money to the market and boost inflation. Similarly, it has resorted to lowering the interest rate, which is key for mortgages - this should boost the property market. The Chinese regulator also started its crusade against sell-offs in the stock markets. Shorting as well as selling of stocks in the first and last 30 minutes of each session has been significantly curtailed. In addition, state-owned companies are expected to pour several hundred billion dollars into the Chinese markets. During January and February, they have already sent nearly 60 billion into them. These artificial interventions in the markets should support stocks and help them to bounce back from the bottom.

So far, these measures seem to be working, with the Hang Seng index up more than 10% since the January low and Alibaba shares showing a similar rise. However, it is too early to declare victory. However, the meeting of the Chinese ruling party in early March may give more clues about the direction of the Chinese economy. The announcement of new stimulus packages could help to stir up people's consumption again.

Let's take a closer look at Alibaba stock itself. They are still trading only about $10 above their yearly high despite the rebound from the bottom. For many speculators, this is a very attractive stock. The chart above just confirms this with a huge amount of gaps. Alibaba stock is thus a haven for speculators and nothing is likely to change that this year. But can they be suitable for longer-term investors?

The Q4 earnings results weren't miraculous - Alibaba fell slightly short of revenue expectations. On the bright side, it did announce a $25 billion increase in share buybacks. In total, this would bring its total share repurchases to $35 billion by 2027, which is more than 17% of its current capitalization. While this may look attractive, Alibaba is only a shadow of the company it was before 2020.

Revenue growth in Q4 was just 5% and profits plunged 69%. The caution of Chinese consumers and their weak consumption is thus clearly reflected in Alibaba's results. In addition, the company is undergoing a major restructuring in which it has split into six sections. Three of them could soon seek an IPO, but with the current mood of the Chinese market, we doubt it. In terms of share buybacks and potential spinoffs, Alibaba may be interesting in the long run, but its growth will depend on the overall mood of the Chinese market. And we are certainly not convinced of its health.

Will Coca-Cola's weight-loss drugs bring people to their knees?

The annual development of Coca-Cola shares interestingly reflects the current situation in the US market. Although the stock indices are setting all-time highs almost every day, Coca-Cola is certainly not behind it. Its shares have risen by just one percent over the past 12 months and by 8% since the beginning of last October. The stock indices are thus clearly being dragged down by technology titles, and the market is forgetting about the good old Coca-Cola Company.

All this can be attributed to Coca-Cola’s new enemy - weight loss drugs. They have expanded enormously in the past year and their users are now watching their calories, ruling out Coca-Cola drinks out of their diet. This pushes Coca-Cola's stock down. Could this be the end for this legendary beverage?

Last quarter's results weren't all bad, with sales up 7% year-over-year to $10.85 billion. However, sales in the US were down 1% as inflation caused consumers to save more. Sales at rival PepsiCo were even down 6%. For the full year 2023, sales were up 12%, but the increase was driven by higher prices, not higher sales.

_{Evolution of Coca-Cola shares on D1 chart in MT4 platform}

For the full year 2024, the company expects revenue growth of 6-7% and profit growth of 4-5%. However, the results may be significantly affected by the exchange rate. The strong dollar is depressing foreign sales and may reduce sales by up to 4% in the current quarter, according to the company. According to the results, Coca-Cola seems to be running out of breath. Coca-Cola shares used to be the darling of value and dividend investors, but have lagged the market significantly recently and the company's growth is expected to slow this year as well.

Declining sales volumes and negative currency effects could push the stock lower this year. Coca-Cola may thus be more interesting for speculators. Rival PepsiCo is in a similar situation - its sales are expected to increase by only 4% this year. High prices combined with a greater focus on health are thus hurting these companies and their opportunities for expansion into other sectors are limited.

Electronic Arts as a bet on the games industry?

Electronic Arts stock has had a very good year. It has risen by 25% over the past 12 months, but has still lagged the market - the Nasdaq 100 index, for example, has shot up by almost 50% over the same period. The maker of the FIFA game series (now EA Sports FC) and Apex Legends experienced a huge boom just after the coronavirus when people stayed at home in large numbers and many spent their time playing games. Since then, however, EA stock has more or less gone sideways, paying for its quick 2020 success.

Moreover, the gaming industry has long been considered recession-proof, but more recently more than one developer has warned of a possible drop in sales. But what were EA's results last quarter? The company's total revenue (as measured by net bookings) came in at US$2.4 billion, with a huge contribution from the highly successful EA Sports FC, which had sales of US$1.7 billion for the quarter. Net sales then came in at US$1.95 billion, an increase of just one percent year-on-year. Profit came in at $290 million, slightly ahead of market expectations.

_{Evolution of Electronic Arts shares on D1 chart in MT4 platform}

We cannot expect miraculous growth from EA in the coming quarters. Like Coca-Cola, EA's sales will be significantly affected by the strong dollar. In addition, competition in the games market is still growing. Microsoft has become the biggest player in the market after the acquisition of Activision Blizzard. In addition, other competitors are also not sleeping - the market is particularly looking ahead to the next installment in the GTA series from Take-Two Interactive. The sixth installment is due to arrive next year and expectations are high.

The further development of EA's stock will also depend on the general mood of consumers in Europe and the US. Thus, interest rate cuts could stir up spending in the gaming industry again and bring further momentum. However, it is clear from the chart above that EA shares are more suitable for speculators in the period around earnings. For long-term investors, Electronic Arts stock is not so interesting right now. EA also buys back its shares and pays dividends - but both are not worth much. In the last quarter, the company bought back $325 million of its stock, and the current dividend yield is around 0.5%.