Weekly Market Review: Building Upon Recent Gains

U.S. stocks gained more than 1% across the board this week, led by the Utilities and Materials sectors. The rally in bonds took a breather, with the yield on the benchmark 10-year U.S. Treasury note declining to 1.57%.

The Banks kicked off earnings season on a positive note and we received a lot of positive economic news this week.

On Thursday, the March retail sales report exceeded expectations. Consumers spent 9.8% more last month, aided by millions of stimulus checks sent to qualified individuals.

Another possible reason for the consumer confidence is that the job market is improving. Weekly initial jobless claims declined to 576,000 in Thursday’s report, which was the lowest since the COVID-19 pandemic began.

On the other hand, it’s worth noting that consumers are paying higher prices. It was reported earlier in the week that the CPI increased by 2.6% in March, or 1.6% excluding food and energy.

Coronavirus Update

This week saw two major milestones crossed in the global fight against the COVID-19 pandemic. First, more than 200 million vaccine doses have now been administered in the U.S. The news is a welcome sign, as the global death toll also tragically crossed 3 million this week.

As vaccine distribution continues to expand across the country, more business and travel restrictions will be lifted, allowing for a continued economic recovery.

Earnings Season

Earnings season heats up this week, with 79 companies in the S&P 500 expected to post quarterly results. Notable reports expected include:

  • April 19: Coca-Cola (KO) and IBM (IBM)
  • April 20: Johnson & Johnson (JNJ), Netflix (NFLX) and Procter & Gamble (PG)
  • April 21: Verizon (VZ)
  • April 22: AT&T (T) and Intel (INTC)
  • April 23: American Express (AXP)

According to Refinitiv, aggregate S&P 500 earnings are expected to increase nearly 31% in the first quarter from a year ago, up from an estimate of 25% just a week ago.

Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 2021.

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 Utility name is worth a closer look and is our Stock of the Week.

Stock of the Week: Black Hills (BKH)

The company operates electric and natural gas utilities, primarily in South Dakota. The stock gained more than 4% this week and we believe this momentum can continue in the first half of 2021.Here’s why:

Utilities are not usually considered the most interesting investments; however, they make sense in an environment where short-term interest rates are low and equity valuations are at the high end of the historical range.

Black Hills stands head-and-shoulders above its peers, because the utility has growth to spare. 92% of the company’s business is regulated, which adds stability to the thesis.

This was on display back in February, when management posted a profit of $1.23 share in the fourth quarter of 2020, which exceeded expectations. Black Hills is targeting an additional 4% earnings growth in 2021.

It’s also worth noting that the utility pays a 3.2% dividend yield. Management has increased the payout 50 consecutive years and can cover the dividend with 58% of expected full-year earnings of $3.89 a share.

In addition, the company carries a Smart Score of 10/10 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 insider buying, in addition to improving sentiment from analysts and investors (both hedge funds and individuals).

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.