U.S. stocks were mixed on Friday and ended the week fractionally lower. Real Estate names led the declines, while the Energy sector continues to buck the early selling trend in 2022.
Inflation was the big focus last week. On Wednesday, it was announced that excluding food and energy, the core U.S. consumer price index (CPI) increased 5.5% in December. This marks the largest growth in 30 years. However, it was dwarfed by the 8.3% increase in core producer prices (PPI) posted the following day.
Additionally, on Friday, the preliminary January readings of the University of Michigan consumer sentiment survey showed higher inflation expectations for both the current year and five years ahead.
The outlook for rising prices helped send the yield on the benchmark 10-year U.S. treasury note up to 1.79% on Friday. The Fed can only set short-term rates; however, Fed funds futures are also now pricing in an 82% probability of a rate increase by March, up from just 42% a month ago.
Elsewhere, the bank stocks kicked off the fourth-quarter earnings season last week, with solid results. According to Refinitiv, aggregate S&P 500 profit is expected to increase 23.1% in the fourth quarter of 2021, bolstered by the Energy sector.
The Week Ahead
U.S. markets will close on Monday, for a holiday. Even with the short week, earnings season is heating up. The following names are scheduled to post results this week:
Jan. 18: Goldman Sachs (GS)
Jan. 19: Bank of America (BAC), Morgan Stanley (MS), Procter & Gamble (PG), and UnitedHealth (UNH)
Jan. 20: Netflix (NFLX)
In economic action, the primary focus next week will be on the U.S. housing market. We’ll also receive some regional manufacturing data that offer a preliminary read on January activity.
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 Commodity name is worth a closer look and is our Stock of the Week.
Stock of the Week: Teck Resources (TECK)
The company mines for steelmaking coal, copper, zinc and other commodities.
The stock gained more than 11% last week. We believe this outperformance can continue in the early months of 2022. Here’s why:
We view Teck as a potential natural hedge to rising inflationary pressures. Its earnings power was on display back in October when management delivered better-than-expected quarterly results.
The company’s revenue grew 73% in the third quarter. It was driven by higher commodity prices, while it posted a record adjusted profit.
Despite the solid results, Teck is currently valued at just 5.5x expected earnings over the next four quarters. This represents a steep discount to the broader market.
In the meantime, the stock 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.
On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen improving sentiment from analysts, investors (both hedge funds and individuals), as well as 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.
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