The shortest day of trading this year turned out to be one of the worst sessions for stocks for 2021.
The S&P 500 declined 2.3% and the Dow Jones Industrial Average lost 900 points on Friday, as fears of the new Omicron COVID-19 variant spooked investors on the half-day of trading following the Thanksgiving holiday.
The swift reaction saw a reversal of the recent “risk-on” trade, as investors bought bonds and once again looked for companies that have seen increased demand during the pandemic.
Before the steep declines on Friday, we received a lot of key economic data last week.
For one, the preliminary November purchasing managers’ index (PMI) reports on Tuesday revealed a mixed bag. U.S. manufacturing activity appears to be increasing, while the services sector is down.
On Wednesday, third-quarter U.S. GDP growth was revised down to 2.1%. It was also reported that the core PCE price index increased 4.1% year-over-year in October.
The Week Ahead
As most major market participants were likely away from their trading desks on Friday, we’d expect the recent volatility to continue early next week, as both the risk-averse and opportunity-seeking investors do battle.
While the calendar turns to December, Salesforce.com (CRM) and Kroger (KR) highlight a relatively quiet earnings calendar next week.
On the economic front, Fed Chair Jerome Powell will testify in front of Congress early next week. Elsewhere, the Institute for Supply Management (ISM) will post the November reading of its Manufacturing index on Wednesday. ISM is also scheduled to release data on the Services sector on Friday.
Friday additionally brings the November jobs report. The U.S. is expected to add 550,000 non-farm payrolls and the headline unemployment rate is estimated to tick down to 4.5%.
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, given a slowing growth outlook and the prospect of higher interest rates. 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: Incyte (INCY)
The company develops therapeutics that help treat cancer and skin ailments.
The stock gained 4% last week and we believe this outperformance can continue as the calendar turns to 2022. Here’s why:
Back in September, management announced that the Food and Drug Administration (FDA) approved Incyte’s product Opzelura, a cream for the treatment of atopic dermatitis. Management believes the product is addressing a market that could be worth more than $1.5 billion annually.
The company has received FDA approval for four different products to date and generates about $3 billion of annual sales. As Incyte expands its global footprint, management is expected to deliver 23% average earnings growth over the next two years.
The company’s profit potential was on display earlier this month when it posted quarterly results that beat the consensus analyst estimates. Incyte earned $1.18 a share in the third quarter, as revenue increased 31% from the previous year to $813 million.
This is why the stock appears to be attractively valued at current levels. It is down 32% from July highs and equivalent to just 15.7x expected full-year earnings of $4.35.
Wall Street agrees that the company holds value. The average price target of 16 active analysts tracked by TipRanks is $93.69, reflecting 39.7% upside potential.
In the meantime, Incyte 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.
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.
