Micron, ARK, Occidental Petroleum: Strategist's stock winners, losers

Freedom Capital Markets Chief Global Strategist Jay Woods joins Yahoo Finance Live to discuss Apple's announcement of its multibillion-dollar CHIP deal with Broadcom, investing in homegrown suppliers, China's block on Micron, and the performance of cyber security, beauty, and petroleum stocks in the market.

Video transcript

SEANA SMITH: Big story today. Apple's multibillion dollar deal with Broadcom to make chips in the U.S. Taking a look at how chip stocks are trading today, a bit of a mixed picture here, but you could see Broadcom one of the winners on the heels of that announcement, with about 30 minutes to go until the close of the trading day.

Will regaining some of that momentum after China's move to ban Micron put pressure on the sector yesterday? Our next guest, though, does see some opportunity in this space with one of his picks for that. We want to bring in Jay Woods, Freedom Capital Markets Chief Global Strategist.

Jay, it's great to have you here on set. So your pick, you have a couple of picks for us today. One of your picks, Micron, stuck out to us given the news that we got just a couple of days ago with China's ban. Why do you like it?

JAY WOODS: All right. I'm a technician first. I look at price activity. And what I see is a very interesting move that happened before the China news, was actually Japan news, which was very positive in the stock last Thursday. And the stock popped. And where did it pop?

It popped above a major resistance level. This area of 65 had been tested so many times and failed. But each time it failed, it made a lower high. So that was positive action. So it had a nice rounded base. If you look at the sector, it's been the laggard.

And all of a sudden, it popped. Then, yes, the China news came out, we got a little concerned. How did it act? It reversed, got back to 65, old resistance became support, and now it's trading higher in a very mixed market. So the action is positive, above 65. I want to be long this stock.

AKIKO FUJITA: So, Jay, you're looking at the technicals. But let me just ask you on Micron, specifically. I mean, we heard yesterday from the company about the potential impact.

It's just over 10% of revenue when you think about how much of their revenue they get from China. In light of what we now know in terms of the ban, does that change your case at all? And does that create a bit of an overhang on the stock?

JAY WOODS: The news, at first, it had me worried. I'm like, this level is never going to hold. But I look at the rest of the sector that has more exposure to China than Micron. Yes, Micron has been singled out, but you don't know if Intel is going to be targeted or Broadcom.

You have to go with what leads. And to me, price continues to lead. And if we're above that 65, it absorbed a major shot across the bow. And to me, the price action still speaks louder than the news in this case. And that news was scary. I'm not going to deny that.

SEANA SMITH: Jay, one of the other picks that you have for us today, you actually like how cybersecurity stocks may be positioned at this point. What's your play there? And why do you see upside?

JAY WOODS: Yes, cybersecurity has been a laggard. It's been trading sideways. I look at not just one stock within the sector but the ETF. And the ETF is HACK. It was trending down for over a year. And the first thing that changed is, one, it stopped going down.

So to me, positive price action. We saw the negativity come out. And what's it been doing since? It's up year to date, it's been trending sideways. And once again, every time it goes up, it fails around this 48.5 level.

And it makes a higher low. Then you want to look under the hood. What are the parts driving it? And you look at great charts like CrowdStrike, Fortinet, Cloudflare. And then after the bell today, we have Palo Alto networks.

It's a little shaky on the chart. Let's see how they do. They've done extremely well after earnings. 8 of the last 10 times, they've traded higher. So that's a positive.

And then Zscaler, another of the top 10 components, reports next week. So right now, I think it's knocking on that resistance level about to break out. And we have two key earnings that could take us above. So if we can get that to trade above 48.5, close there, I think you have a nice 10% to 15% higher over the next six to eight weeks.

AKIKO FUJITA: Before we go to some of the stocks that you're staying away from, Jay, I have to ask you about the one you're watching very closely. And that is ARK. A little surprising to me.

I will say, yes, it is up about just over 25%, nearly 30%, on the year. But it's fallen so much. And I have to wonder what you see as a potential catalyst that could push this to the upside, maybe not at levels that we saw in 2020, but certainly not how far it fell last year.

JAY WOODS: Oh, no. The stock was down 80% peak to trough. And now it's rebounding, it's having a nice year. And it's doing it without the euphoria, without the hype. As you mentioned, Akiko, we're not seeing like everyone talk about it, and I kind of like that. It's being forgotten to an extent.

Now, I know Remy talked about Palantir. Once again, just like in HACK, look under the hood. What are the stocks that are leading? Her top 10 holdings are starting to look very nice, whether it's DraftKings, Palantir, Shopify. And then the stocks that have been beaten down, they're holding on relatively well.

So I don't see much of a downside. And then what I like, risk-reward setups. So it stopped going down, its basing, higher lows, and now it's trading above its 200-day moving average. It did it to us once before, it failed.

So you get stopped out on a loss, but the risk-reward setup is nice. It's not euphoric, it's not going to act like it did years ago. But what we have is a very potentially nice upside. And some stocks within the sector look very sharp to me as well.

SEANA SMITH: Jay, let's take the flip side of the stocks that you're saying to avoid right now. One of those is Occidental, a name that Berkshire's Warren Buffett likes. We know that Berkshire just upped its stake to over 24% in this company. You're not buying the hype though.

JAY WOODS: No. Occidental was the best performing stock in the S&P 500 last year. Everyone is familiar that Warren Buffett owns over 20% of the company. Back when they were in Omaha a couple of weeks ago, he was asked, are we going to take a bigger stake in it? And he said, no, we kind of punted on the question, and then let's look at the technicals.

We have got a major topping pattern going back eight months to when the stock made its peak. And now every time it gets to this 56 to 60 area, it's support. And that support has been Warren Buffett. And the more often that support is tested, the more likely it's going to fail.

You look at the sector, it's toppy right now. If we see crude breakout to new levels and we get a run in the summer driving season, then maybe the stock holds on. But to me, it's a strict avoid. You see a topping pattern.

And if we break and close below 56, you have a lot to reverse. So that scares me a little bit, because we don't want to be in a stock that's breaking down. If you play it, play it safe with the stop at 56.

AKIKO FUJITA: Finally, Jay, the other one that you're staying away from is ALF. It has had an incredible run, and I wonder how much of that is about just simply looking at the technicals here, seeing that it is up significantly. Or is it about concerns on the business strategy here? And how much of a pullback they're likely to see?

JAY WOODS: The business strategy has been working. I mean, I have a daughter. I know the story. It's phenomenal. It's up 300% year to date. And it looks like it's tiring. And it's got earnings after the bell.

One, I try not to play stocks into earnings. And the tremendous run is there and it looks like it's tiring out. It just broke a small level, nothing major, in a consolidated triangle, which is a continuation pattern to the upside. It's right on its trend line, it's right on its 50-day moving average.

Given the run that it's had, it's really going to have to crush it this afternoon in earnings to see it make new highs. Could it happen? Sure, it could happen. But this is one I would avoid. And the risk-reward is more set up to the downside.

We haven't seen many stocks beat and go down. Walmart did. But with this stock, if you have profits, you made 300%, I would probably take them in and sit out this earnings period. And if it can gap higher, then yes, you may see another run. But right now, the risk-reward setup is, to me, something you want to avoid.

SEANA SMITH: Yeah, a lot of that good news might already be priced in, given that 300% increase over the last year. Jay Woods, great to have you. Thanks.

JAY WOODS: Great to be here. Thank you.