U.S. stocks bounced back sharply from earlier losses to finish the week 1%-2% lower across the board. Consumer Discretionary and Technology names led the declines after a couple of high inflation reports spooked investors.
On Wednesday, the April consumer price index (CPI) showed 4.2% headline year-over-year growth or up 3% excluding food and energy. On Thursday the producer price index (PPI) came in even hotter at 6.2% growth, or 4.1% higher, excluding food and energy.
Both of these figures were well ahead of expectations. The NFIB Small-Business Optimism survey and University of Michigan Consumer Sentiment readings also showed signs of inflationary pressures.
The Federal Reserve long believed this price growth will prove to be temporary and largely a function of restarting the global economy from scratch a couple of months ago. Even if there are no immediate plans to raise interest rates, we believe the situation should be monitored in the second half of 2021.
The Week Ahead
Retailers dominate the earnings calendar this week, led by Home Depot (HD) and Wal-Mart (WMT) on Tuesday. Lowe’s (LOW) and Target (TGT) will report Wednesday, along with tech stalwart Cisco Systems (CSCO).
On the economic front, we’ll get several readings about the state of the housing market next week. On Wednesday the FOMC will release the minutes from their latest meeting. We will also see some initial May data from regional manufacturing reports. It all culminates with the preliminary reports of the IHS Markit PMI indexes on Friday.
Following the snap-back recovery in stocks 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: NortonLifeLock (NLOK)
The company produces cyber safety products for consumers, protecting various modes of digital threats.
The stock gained more than 23% last week. We believe this momentum can continue into the second half of 2021. Here’s why:
Management announced quarterly results on Monday that exceeded the consensus analyst estimates. NortonLifeLock earned $0.40 a share in the March quarter, as revenue increased 9% from a year ago, to $672 million.
Upside in the period was driven by 17% growth in consumer billings. This helped management expand the operating margin by nine percentage points. The company also boosted guidance for the June quarter, to earnings of $0.40 to $0.42 a share, on $680 to $690 million of revenue.
In addition, NortonLifeLock added $1.5 billion (57.5 million shares) to its stock buyback program. The company also pays a quarterly dividend of $0.125 a share (1.9% yield).
Following the results, Barclays boosted its price target to a Street-high of $31 a share (32.8% upside potential). Analyst Saket Kalia cited expectations for double-digit annual revenue growth over the next three-five years. He believes that over this time earnings will increase by more than 100%.
Kalia is rated in the top-7% of the nearly 7,500 analysts tracked by TipRanks, which adds weight to the call.
The company also 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 improving sentiment from individual investors 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.
