Weekly Market Review: Marking Time Ahead of Election

The broader market averages posted fractional losses this week as the pace of earnings reports accelerated. Negotiators again failed to reach a compromise on a new economic relief program ahead of the national elections on Nov. 3.

Communications Services stocks led the way higher this week. A poor earnings report from Intel (INTC) on Thursday weighed on technology names.

For the second time in three weeks, the yield on the benchmark 10-year U.S. Treasury note moved higher and now sits at 0.84%. A steeper yield curve is welcome news to the Financial sector. However, most market players view the potential for future inflation with a cautious tone.

Coronavirus Update

While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us.

On Thursday, the Food and Drug Administration approved Gilead Sciences’ (GILD) Remdesivir, as the first treatment for the disease. The product is not seen as a panacea; but is still welcome news, given the U.S. reported a record 80,000-plus new cases on Friday.

If the pandemic continues to spread, it could hamper the positive trajectory of the economic recovery reported in recent months.

What to Expect Next Week

Looking ahead to next week, 180 companies in the S&P 500 are expected to post results. Amazon.com (AMZN), Apple (AAPL), Boeing (BA), Facebook (FB), Microsoft (MSFT), Pfizer (PFE) and Starbucks (SBUX) are among the names headlining the earnings calendar.

84% of the 135 companies in the S&P 500 that posted results so far have exceeded expectations. This is above the average of 73% over the past four quarters.

On the economic front, we’ll get monthly new homes sales data on Monday. This will be followed by durable goods orders and consumer confidence on Tuesday. Thursday offers a look at GDP, which is expected to show a 30% rebound from a dismal second quarter.

Following the snap-back recovery in stocks from March lows, we believe that investment gains will be harder to come by in the fourth quarter.

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: Calix (CALX)

The company makes cloud software that helps customers like Verizon (VZ) optimize networks.

The stock gained 26% this week and we believe this positive momentum can continue throughout the remainder of 2020. Here’s why:

Even if continued progress is made toward treatments and vaccines for the coronavirus in the coming months, allowing for a return of business activity, we believe that several “temporary” remote working situations will become permanent. 

Calix is riding strong operating momentum into 2021, after delivering results earlier on Tuesday that surpassed management’s guidance for a third straight quarter.

The company earned $0.40 a share in the third quarter, as revenue increased 31% from the previous year to $150.5 million. Upside in the period was driven by 70% growth in cloud sales. Calix saw solid demand across the board, as network service providers have been tasked with increasing capacity during the pandemic.

Looking ahead to the fourth quarter, management expects revenue of $157 to $161 million and to generate positive free cash flow.

Following the results, Jefferies analyst George Notter boosted his price target to a Street-high of $35 (34.4% upside potential), citing:

“1) their Calix Cloud business will drive significant long term upside to Street revenue/EPS expectations and we’re still early in this transformation; 2) the current WFH environment emphasizes the criticality of good consumer broadband services – big positives for Calix; and 3) other catalysts have yet to play out (RDOF, potential Broadband Stimulus, re-capitalized Balance Sheets among their customers).”

Notter is rated in the top-7% of over 7,000 analysts tracked by TipRanks, which adds weight to the call.

In addition, it’s worth noting that 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 the company has seen insider buying and 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.