U.S. stocks rode a roller-coaster week, as the calendar turned to the final month of 2021. December began with a whimper, as the broader market averages fell on Friday and posted losses for the week.
The S&P 500 declined 1.2%, led by Communications Services and Consumer Discretionary names. Elsewhere, investors bought bonds and sold cryptocurrencies last week.
Globally, the major news has been centered around the outbreak of the Omicron variant of COVID-19. Many countries have re-enacted business and travel restrictions. Meanwhile, weekly reported cases and deaths from the disease are each up 29% in the U.S.
In addition to fears about a resurging pandemic, investors also digested Congressional testimony from Jerome Powell on Tuesday. The Federal Reserve may discuss accelerating the tapering of its bond buying later this month. As a result, Fed funds futures are now pricing in a 51% likelihood of an interest rate hike by May 2022, up from 27% a month ago.
In economic action, all eyes were on the November employment report on Friday. The U.S. economy added just 210,000 non-farm payrolls last month, which was well below expectations. On the other hand, the headline unemployment rate fell to 4.2%.
In other news, the Institute for Supply Management (ISM) said that both Manufacturing and Services activity increased in November.
The Week Ahead
Broadcom (AVGO), Costco (COST), and Oracle (ORCL) headline a relatively quiet earnings calendar next week.
On the economic front, all eyes will shift back toward inflation on Friday. The consumer price index (CPI) is expected to show 4.9% core growth in November, excluding food and energy. In addition, the University of Michigan consumer sentiment survey will offer an early reading on U.S. prices in December.
Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in the coming quarters, given a slowing growth outlook and the prospect of higher interest rates. As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Financial Services name is worth a closer look and is our Stock of the Week.
Stock of the Week: Fiserv (FISV)
The company provides a wide range of payment services for the financial industry. The stock gained 2.6% last week and we believe this outperformance can continue as the calendar turns to 2022. Here’s why:
For one, management posted better-than-expected quarterly results back in October.
Fiserv earned $1.47 a share in the third quarter, as revenue grew 10% from a year ago, to $4.16 billion. Upside in the period was driven by growth in all three business segments, which led to a 130 basis-point increase of operating margin.
The company also returns excess cash flow to investors and has bought back more than $1.5 billion worth of stock year-to-date.
Despite the solid quarter, the stock is down 15% from August highs. At current levels, shares are valued at just 15.5x expected full-year earnings of $6.50. This reflects a discount to the industry average of 22.5x and the 19.3% annual profit growth that Fiserv is expected to generate over the next three years.
Wall Street agrees that the company holds value. The average price target of 14 active analysts tracked by TipRanks is $132.15 a share, which represents 31.5% upside potential.
In the meantime, Fiserv carries a Smart Score of 9/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen improving sentiment from hedge funds and financial bloggers.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.
