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Weekly Market Review: Calm Before the Earnings Storm
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Weekly Market Review: Calm Before the Earnings Storm

U.S. stocks were mixed this week as the Banks kicked off earnings season. The S&P 500 gained 1.3%, led by cyclical groups like Industrials and Materials. However, the Nasdaq Composite fell 1.1%, driven by profit-taking.

Coronavirus Update

While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us. As testing increases, nearly 225,000 new daily cases are being recorded globally, including about 65,000 in the U.S. alone.

With so many unknowns surrounding the spread and treatment of the disease, several top school districts in California have already tabled plans for students to return to classrooms in the fall. If the pandemic continues to spread, it will likely hamper the positive trajectory of economic recovery reported in recent months.

Earnings Season

Second-quarter earnings season starts to ramp up next week, with 91 names in the S&P 500 on the reporting calendar. Here are some of the names we’ll be watching:

Monday: IBM (IBM)

Tuesday: Coca-Cola (KO) and Texas Instruments (TXN)

Wednesday: Microsoft (MSFT) and Tesla (TSLA)

Thursday: AT&T (T)

Friday: American Express (AXP) and Verizon (VZ)

According to Refinitiv, second-quarter earnings and revenue for the S&P 500 are expected to fall 43% and 11%, respectively. In addition to the obvious disruptions from coronavirus-related shutdowns, we expect earnings “surprises” to be higher than usual this quarter, as many firms have withdrawn 2020 guidance. 

Following the snap-back recovery in stocks the past few months, we believe that investment gains will be harder to come by in the second half of the year.

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

Stock of the Week: Laboratory Corp. (LH)

The company provides two services: 1) diagnostic lab testing and 2) drug-development services. Both businesses are relatively steady, no matter where we currently are in the economic cycle.

The stock gained 12% this week and we believe this positive momentum can continue into the second half of the year. Here’s why:

The stock received two upgrades this week. First, Wolfe Research boosted its rating on the company on Monday to Outperform. BofA/Merrill Lynch also upgraded on Tuesday, from Neutral to Buy.

13 of the 14 Laboratory Corp. analysts tracked by TipRanks now rate the shares a Buy. The average price target of $217.58 represents 12.4% upside potential.

The company is seeing increased demand because of tests for the coronavirus, and that is only a minor part of our investment thesis. Last quarter, the drug-development side of the business also delivered 6.2% organic sales growth. Management will next post quarterly on July 28 and has surpassed earnings expectations six straight times.

In the meantime, Laboratory offers investors growth at a reasonable price. The company is valued at 14x expected 2021 earnings of $13.81 a share, which is a discount to both the broader market and its 14.7% expected average profit growth over the next two years.

It’s also worth noting that the stock 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 the company has seen improving sentiment from investors (both professional and individual) 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.

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