The broader U.S. market averages rallied in the latter half of the week, registering solid gains. The S&P 500 pushed 1.8% higher, led by Materials, Real Estate, and Consumer Discretionary stocks.
Investors celebrated a robust start to the third-quarter earnings season, which the Banking sector kicked off last week.
In economic activity, September U.S. retail sales came in better-than-expected on Friday. The long-term inflation expectations from the preliminary University of Michigan consumer sentiment survey also suggested lower future price growth.
That’s not to say that high inflationary pressures aren’t here with us today. Earlier in the week, core U.S. September inflation showed 6.8% annual growth at the producer level and 4% for consumers, excluding food and energy prices.
The Week Ahead
Earnings season is heating up, with 78 companies in the S&P 500 on the reporting calendar this week. Among the big names scheduled to announce results are:
Tuesday: Johnson & Johnson (JNJ), Netflix (NFLX), and Procter & Gamble (PG)
Wednesday: Tesla (TSLA) and Verizon (VZ)
Thursday: AT&T (T) and Intel (INTC)
Friday: American Express (AXP)
According to Refinitiv, aggregate S&P 500 profit is expected to grow 32% year-over-year in the third quarter, leveraged from a 14% revenue increase.
On the economic front, China’s third-quarter GDP data could affect U.S. markets before full trading even opens up on Monday morning.
Back at home, we’ll receive several key pieces of housing data this coming week. Friday also offers a preliminary look at the October purchasing managers’ index (PMI) readings from IHS Markit.
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. 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: Organon (OGN)
The company sells dozens of pharmaceuticals, with the bulk of its revenue generated from older brands, such as Nasonex and Propecia.
The stock gained 7% last week and we believe this outperformance can continue in the final months of 2021. Here’s why:
Organon was spun out of Merck (MRK) in June and its best near-term growth prospects lie in the women’s health division, which produces contraceptive and fertility products.
This potential was on display in August when management posted better-than-expected quarterly results. The company earned $1.72 a share in the second quarter, as revenue increased 4% from a year ago, to $1.59 billion.
Organon also returns cash to shareholders, in the form of a 29-cent quarterly dividend (3.2% yield).
At current levels, the stock appears inexpensive. The company is valued at just 5.6x expected full-year earnings of $6.25 a share, which is a steep discount to the broader market.
In the meantime, Organon 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 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.
