U.S. stocks posted modest gains on Friday, to end last week 1% to 2% higher across the board. Communication Services and Consumer Discretionary names led the way, while Utilities sector lagged. Bonds also rallied, as the yield on the benchmark 10-year U.S. Treasury note moved down to 1.58%.
On Friday, it was reported that the PCE price index rose 3.6% in April, or 3.1% excluding food and energy. Although this is above the level where the Federal Reserve has raised interest rates in the past, Chair Jerome Powell has said in recent months they believe that current inflationary pressures will prove temporary.
Elsewhere in the economic data, monthly home sales declined and weekly initial jobless claims fell for a fourth straight week.
The Week Ahead
U.S. markets will be closed Monday, in observation of the Memorial Day holiday. The earnings calendar is sparse this week, with Broadcom (AVGO) and Zoom (ZM) headlining the schedule.
We’ll get the May ISM manufacturing reading on Tuesday, followed by their look at the services sector on Thursday. Combined, the data provide a comprehensive look into the current state of the U.S. economy.
The key report this week will be the May employment report on Friday. Consensus expectations call for the addition of 720,000 non-farm payrolls in the month and for the headline unemployment rate to fall to 5.9%.
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 Technology name is worth a closer look and is our Stock of the Week.
Stock of the Week: Microchip (MCHP)
The company makes a wide range of semiconductors and offers something for both growth and income investors.
The stock gained nearly 5% last week and we believe this momentum can continue into the second half of 2021. Here’s why:
Management delivered quarterly results earlier this month that surpassed expectations. The company earned $1.85 a share in the March quarter, as revenue increased 11% from a year ago, to $1.47 billion.
Despite a supply shortage that has plagued the entire semiconductor industry, Microchip also upped its guidance for the current quarter. The company generates about three-quarters of its sales outside of the Americas and additionally stands to benefit from a weaker U.S. dollar.
In concert with the earnings report, management boosted the quarterly dividend to $0.413 a share (1.1% yield). Investors at the close of trading on May 19 qualified for the next payment on June 4.
The stock is currently valued at 18.1x expected full-year earnings, which represents a discount to both the broader market and average industry valuation of 24.2x.
Wall Street also sees value in the company. All 10 active analysts tracked by TipRanks rate Microchip a Buy and the average price target of $184.40 represents 17.5% upside potential.
In the meantime, it’s worth noting that the company 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 insider buying, in addition to improving sentiment from financial bloggers and individual investors.
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.
