The first week of 2021 brought a lot of surprises. Investors seemed unfazed, continuing to push stock prices higher.
The S&P 500 logged a 1.8% gain, led by cyclical groups such as Energy and Materials. On the other hand, Real Estate names lagged following a further increase in the 10-year Treasury rate to 1.11%.
The speculative nature of the current bull market was exhibited by a 5.9% rise in the Russell 2000 index, a proxy for smaller companies. The price of Bitcoin also jumped to over $40,000.
The first surprise this week came when Democrats won both Senate seats in Georgia during Tuesday’s runoff election. This secures a majority in both houses of Congress.
Less than 24 hours later, a mob of protesters forcefully occupied the U.S. Capitol building for a couple of hours during the formal process of confirming the Presidential victory of Joe Biden.
The event resulted in a tragic loss of life. Political leaders are pushing for a potential second impeachment trial for President Trump, in the waning days of his term.
In economic news, the December jobs report on Friday showed a surprise loss of 140,000 non-farm payrolls. This news, along with newfound Democrat control of the Senate, sparked reports that more relief/stimulus programs could be announced in the early days of the Biden administration.
It may no longer be the top news story in the financial press, but the coronavirus pandemic is still with us.
This week we crossed the somber milestone of 90 million cases reported globally, even as vaccines continue to be distributed.
If the pandemic continues to persist, it could hamper the positive trajectory of the economic recovery in 2021.
What to Expect Next Week
Earnings season kicks off on Friday. Top banks Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC) will post quarterly results. Refinitiv predicts that aggregate S&P 500 profit will fall 10% in the fourth quarter, from a year ago.
In economic news, Friday will offer a look at December retail sales. We’ll also receive consumer and producer inflation reports earlier in the week. Investors are paying more intention to these metrics, as the U.S. dollar is falling and long-term rates are signaling that inflation risk is building.
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 Basic Materials name is worth a closer look and is our Stock of the Week.
Stock of the Week: Myers Industries (MYE)
The company operates in two distinct businesses: manufacturing plastic containers and distributing tire repair supplies.
The stock gained 4% this week and we believe this momentum can continue in the early months of 2021. Here’s why:
Myers is growing profits and is leveraged to a global economy that should continue to recover in 2021, as the COVID-19 pandemic gradually subsides.
This growth potential was on display in October, when management posted quarterly results that exceeded expectations. The company earned $0.30 a share in the third quarter, as revenue increased 5% from a year ago, to $132.3 million. Consensus estimates call for Myers to generate 19.1% average profit growth over the next two years.
Speaking of analysts, Steve Barger of Keybanc upgraded the stock in December, from Sector Weight to Overweight. Barger is rated in the top-5% of over 7,200 analysts tracked by TipRanks, adding weight to the call.
It’s also worth noting that the company returns cash to investors through a quarterly dividend of $0.135 a share (2.5% yield). Management can cover the payout 2x with expected annual earnings, giving Myers room to potentially increase the dividend in 2021.
Finally, the company 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 insider buying, in addition to improving sentiment from financial bloggers and 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.