Weekly Market Review: Rally Pauses Ahead of Holiday

The broader stock market averages snapped a five-week winning streak, as investors locked in gains ahead of an extended weekend. Energy and Technology names led the way lower, while Materials and Utilities lagged.

Despite the market pullback, the data continued to show a gradual rebound in the U.S. economy this week. It was reported on Friday that 1.37 million non-farm payrolls were added during August, while the headline unemployment rate fell to 8.4%.

Coronavirus Update

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

Progress continues to be made on both the treatment and vaccine front, but there was a sobering report from the University of Washington on Friday. Their latest model suggested that the death toll in the U.S. could more than double by the end of the year, to 410,000.

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

What to Expect Next Week

As a reminder, U.S. markets will be closed on Monday September 7 for a holiday.

When trading resumes, Catalent (CTLT), Etsy (ETSY) and Teradyne (TER) will likely be in favor, as it was announced late Friday that they’ll be added to the S&P 500 index later this month. 

On the economic front, we’ll get a look at prices for both consumers and producers at the end of the week. Both readings jumped last time around and the Federal Reserve recently stated that it is willing to let inflation climb higher than the target of 2% annual growth. 

Following the snap-back recovery in stocks the past few months, we believe that investment gains will be harder to come by in the second half of the year.

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

Stock of the Week: OneMain (OMF)

The company provides personal loans and other consumer financial products. The stock gained nearly 4% this week and we believe this positive momentum can continue throughout the remainder of 2020. Here’s why:

OneMain has carved a niche in subprime lending, where it controls about 20% of its target market, helping customers to consolidate debt or meet unexpected household costs.

Consumer activity has been mixed during the coronavirus pandemic. On one end, tens of millions of Americans remain out of work, but aggregate retail spending has remained resilient over the past six months.

In the meantime, OneMain’s results show a business that is seeing steady growth. The company earned $0.80 a share in the second quarter, as revenue increased 4% from the previous year, to $954 million.

That growth comes at an attractive price these days, as the stock is valued at just 8.5x expected full-year earnings of $3.66. This represents a discount to both the broader market and the average industry valuation of 13.7x.

Management kept the business profitable throughout the Financial Crisis and noted that OneMain’s credit portfolio has not experienced outsized losses since the coronavirus impact began in March.

In fact, the company added a one-time payout of $2 a share to its latest regular quarterly dividend of $0.33 (4.2% yield).

It’s also worth noting that 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 the company has seen improving sentiment from analysts, hedge funds and 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.