Weekly Market Review: Kicking Off New Quarter with Gains

U.S. stocks rallied fractionally on Friday, starting off the month of April and the second quarter on a positive note.

With the positive session, the S&P 500 ended last week fractionally higher. Real Estate and Utilities led the gainers, while the Financial sector lagged.

Elsewhere, U.S. treasury markets flashed a bearish sign. The yield of the 10-year note fell below that of the 2-year, which has historically been an omen of a potential economic recession.

To that end, the economic data were mixed last week. For one, it was reported on Tuesday that U.S. consumer confidence increased in March. On the other hand, Friday’s data from the Institute for Supply Management (ISM) showed a decline in manufacturing activity.

Friday’s jobs report was also a mixed bag. The U.S. economy added a solid 431,000 non-farm payrolls in March, but fell short of expectations. At the same time, the headline unemployment rate declined to 3.6%. 

The Week Ahead

There are no major earnings announcements on the calendar this coming week. However, a new quarter means that reporting season is right around the corner.

According to Refinitiv, aggregate S&P 500 profit is expected to increase 6.4% in the first quarter. Backing out the Energy sector, which benefited from higher commodity prices, earnings are actually expected to have declined from the previous year.

On the economic front, ISM is expected to post its March report for the Services sector on Tuesday. This will be followed by the minutes of the latest FOMC meeting a day later.

Following the snap-back recovery in stocks over the past several quarters from Pandemic lows, we believe that investment gains will be harder to come by in 2022, 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 Financial Technology name is worth a closer look and is our Stock of the Week.

Stock of the Week: Paypal (PYPL)

The company is a leader in the digital payments market. The stock gained more than 2% last week. We believe this outperformance can continue in the first half of 2022. Here’s why:

On Wednesday, Goldman Sachs started coverage of Paypal with a Buy rating, citing a continued shift toward digital payment activity.

Goldman analyst Michael Ng is in good company, as there are nearly 40 active analysts tracked by TipRanks. The average price target of $180.63, represents 54.8% upside potential.

Although the company missed earnings expectations last quarter, underlying growth trends remain strong. Free cash flow increased 38% and management is targeting 20% annual revenue growth.

At current levels  the stock offers investors growth at a reasonable price, valued at 24.5x expected earnings over the next four quarters. This is below the industry average and broader market valuations, as well as being on par with Paypal’s long-term growth rate.

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 insider buying, in addition to improving sentiment from 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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