U.S. stocks declined fractionally last week, to close out the month of July. Consumer Discretionary names led the way lower, while the Materials sector rallied.
It was the busiest week of this quarter’s earnings season and more than 88% of the companies in the S&P 500 have exceeded profit expectations so far.
In economic news, there were no surprises with the FOMC statement on Wednesday. However, the preliminary reading for second-quarter U.S. GDP growth fell short of expectations on Thursday.
Elsewhere, the data were mixed. On one hand, consumer confidence and the PCE deflator were better than expected. On the other, durable goods orders and new homes sales fell short of the mark.
The Week Ahead
The second-quarter earnings season is powering forward, with 151 companies in the S&P 500 scheduled to announce results. The following names highlight the calendar:
Aug. 3: Amgen (AMGN), Eli Lilly (LLY) and Marriott (MAR)
Aug. 4: CVS Health (CVS) and General Motors (GM)
Aug. 5: Expedia (EXPE)
According to Refnitiv, aggregate profit for the S&P 500 is expected to increase 90% from a year ago, leveraged from 22% sales growth.
On the economic front, we’ll get the ISM Manufacturing index on Monday, followed by the accompanying Services index Wednesday. Friday brings the July employment report, where economists call for the addition of 900,000 non-farm payrolls and the headline unemployment rate to fall to 5.7%.
Following the snap-back recovery in stocks last year 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 Industrial name is worth a closer look and is our Stock of the Week.
Stock of the Week: Darling Ingredients (DAR)
The company produces natural-based food and fuel products. The stock gained 3% last week and we believe this outperformance can continue into the second half of 2021. Here’s why:
Darling is leveraged to the push for “cleaner and greener” products, as was evidenced back in May when management delivered quarterly results that surpassed expectations.
The company earned $0.90 a share in the first quarter, as revenue increased 23% from a year ago, to $1.05 billion. Upside in the period was driven by higher fat and protein prices.
Wall Street also has a favorable outlook for the stock. All eight active analysts tracked by TipRanks have a Buy rating. The average price target of $92.38 reflects 33.8% upside potential.
Despite the upbeat outlook, Darling is down 13% from its March highs. Shares are currently valued at 19.8x expected 2021 earnings of $3.49 a share, which is a discount to the 55.7% average annual profit growth projected over the next two years.
Insiders agree that the stock is attractively valued. According to an SEC filing in June, the company’s chief accounting officer bought $133,000 worth of shares on the open market.
There are several reasons why insiders may sell stock in their company; however, they usually only buy when upbeat about the near-term prospects.
In addition, Darling 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 improving sentiment from financial bloggers and individual investors.
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.
