The broader market averages were mixed across the board on Friday and posted fractional gains for the week. The Real Estate sector led the way higher, while Financials lagged.
The August jobs report on Friday left investors with more questions than answers. The U.S. economy added 235,000 non-farm payrolls last month, well below expectations, and the lowest figure since January.
Elsewhere last week, the Institute for Supply Management (ISM) posted a mixed picture with its August data. The ISM said that the U.S. manufacturing sector improved last month, while the services side of the economy declined more than expected.
On Tuesday, the Conference Board confirmed the softness for service businesses, as U.S. consumer confidence declined in August.
One month does not make a trend; however, it’s worth looking to see if the weaker numbers continue into September. In the meantime, some market watchers believe the slower economic growth suggests the Federal Reserve will look to keep short-term interest rates lower for longer.
The Week Ahead
On the economic front, inflation will be back in focus, with August producer prices due out Friday. Investors will also be keeping a close eye on fixed income markets, as the U.S. Treasury has scheduled several bond auctions.
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 Consumer name is worth a closer look and is our Stock of the Week.
Stock of the Week: CVS Health (CVS)
The company operates nearly 10,000 retail pharmacies across the U.S. It also serves tens of millions through Aetna insurance and Caremark pharmacy benefits.
The stock gained more than 4% last week. We believe this outperformance can continue in the final months of 2021. Here’s why:
CVS Health exhibits defensive growth characteristics. These were displayed when management delivered better-than-expected quarterly results in August.
The company earned $2.42 a share in the second quarter, as revenue grew 11% from the previous year to $72.6 billion.
CVS Health has been paying down debt in 2021 and offers a quarterly dividend of $0.50 a share (2.3% yield). We believe there’s room for management to possibly boost the payout down the road.
At current levels, the company is valued at just 11.2x expected full-year earnings of $7.81 a share. This represents a discount to both the broader market and the average industry valuation of 12.6x.
Wall Street agrees that the stock has value. The average price target of nine active analysts tracked by TipRanks is $101.22, which is 15.7% above current levels.
In addition, 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 shares have seen insider buying, in addition to improving sentiment from hedge funds 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.