Weekly Market Review: Quiet Ahead of Earnings Push

U.S. stocks managed to scratch out a small weekly gain. A sharp rally on Monday was whittled down over the ensuing sessions. Industrial names led the way higher this week, while the Real Estate and Energy sectors lagged.

The Financial sector kicked off earnings season this week, providing a mixed outlook for 2021. On the economic front, core September retail sales increased 1.5% from the previous month, exceeding expectations.

Coronavirus Update

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

The search for a treatment or vaccine experienced both progress and setbacks this week. On the bright side, Pfizer (PFE) said Friday that it may be ready to file for emergency-use authorization of its vaccine in about a month.

On the other hand, trials for potential products being researched by both Eli Lilly (LLY) and Johnson & Johnson (JNJ) were paused due to safety concerns. In addition, France and the U.K. announced renewed business and travel restrictions.

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, 91 companies in the S&P 500 expected to post results. Coca-Cola (KO), Intel (INTC), Netflix (NFLX) Procter & Gamble (PG) and Verizon (VZ) are among the names headlining the earnings calendar. According to Refinitiv, aggregate S&P 500 profit is expected to decline 19% from a year ago.

In economic news, we’ll get several readings on the health of the housing market. Parallel to retail activity, home buying has been another sign of resilient consumer demand during the pandemic.

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 Healthcare name is worth a closer look and is our Stock of the Week.

Stock of the Week: AmerisourceBergen (ABC)

The company is a leader in the pharmaceutical distribution business. The stock gained nearly 3% this week and we believe this positive momentum can continue throughout the remainder of 2020. Here’s why:

For one, AmerisourceBergen appears poised to deliver consistent growth in an uncertain economic environment. This was apparent back in August, when management delivered quarterly results that exceeded expectations.

The company earned $1.85 a share in the second quarter, as revenue increased fractionally from a year ago, to $45.4 billion. Higher demand for specialty drugs has boosted margins throughout 2020.

This momentum should continue over the next several quarters, with AmerisourceBergen expected to average 9.7% annual profit growth over the next two years.

In the meantime, the stock is reasonably valued at just 12.6x expected 2020 earnings of $7.45. This is a discount to both the broader market and the average industry valuation of 14.1x.

Wall Street agrees the company has upside potential. The average price target of nine active analysts tracked by TipRanks is $114, which represents 14.6% upside potential.

In addition to a stable balance sheet (A-level debt rating), it’s worth noting that the stock carries a Smart Score of 8/10 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 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.