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Weekly Market Review: Fed Statements Spark Increased Volatility

The broader U.S. stock market averages tumbled last week after the Federal Reserve changed its long-term economic projections on Wednesday.

Trading volatility also increased, as we marked a quarterly options expiration. The benchmark S&P 500 index declined nearly 2% last week, led by Materials and Financial names. On the other hand, Technology stocks ticked higher.

The Fed kept short-term interest rates near zero on Wednesday, while maintaining $120 billion of monthly asset purchases. At the same time, the “dot plot” of future expectations now shows the probability for two rate increases in 2023.

Earlier in the week, inflationary pressures showed further signs of flaring up. On Tuesday, the U.S. May producer price index (PPI) showed 6.6% growth from the previous year, or 4.8% excluding food and energy.

It is historically part of the Federal Reserve’s dual mandate to monitor inflation closely. That said, this time around, Chair Jerome Powell has regularly stated their primary focus is a full recovery of the U.S labor market, as higher inflation trends are expected to prove temporary.

The Week Ahead

Looking forward, FedEx (FDX) and Nike (NKE) highlight a relatively quiet earnings calendar this week.

On the economic front, we’ll get the preliminary June PMI readings on Wednesday, followed by the core May PCE price index Friday. The latter is the Fed’s key inflation gauge and is expected to show 3.4% year-over-year growth.  

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

Stock of the Week: Griffon (GFF)

The company operates in multiple business lines; one of which makes it the largest manufacturer of garage doors in North America.

Griffon also makes gardening tools and closet organizers for the home. It generates another 14% of revenue from a division that supplies Defense and Aerospace customers.

The stock held up relatively well in a down market last week and we believe this relative outperformance can continue into the second half of 2021. Here’s why:

The company is leveraged to a robust housing market and strong consumer spending. This was evident in April when management posted quarterly results that surpassed expectations.

Griffon earned $0.48 a share in the March quarter, as revenue increased 12% from a year ago, to $634.8 million. The company faces higher input costs for resin and other materials. So far, management has been able to pass those costs along to customers.

At current levels, the stock is valued at just 13.3x expected full-year earnings of $1.89 a share. This is a discount to both the broader market and the median industry valuation of 15.9x.

Wall Street also sees value in Griffon. All four active analysts tracked by TipRanks rate the shares a Buy and the average price target of $33.33 represents 32.3% upside potential.

GFF stock analysts recommendation

It’s additionally 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.

Griffon stock price and analysis

On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen 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.

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