Weekly Market Review: Rally Takes a Breather Ahead of Holiday

U.S. stocks sold off after a sharp rally on Monday, ending the week fractionally lower. Utility names led the way lower, while the Energy sector was the best performer for a second straight week.

Investors balanced positive news regarding potential COVID-19 treatments against an increasing amount of daily reported cases and deaths.

In economic news, the October retail sales report fell short of expectations on Tuesday. Later in the week, Treasury Secretary Steve Mnuchin said that five emergency lending programs would expire at the end of December.

Coronavirus Update

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

On Monday, Moderna (MRNA) announced that its prospective vaccine was effective in more than 90% of patients. The Food and Drug Administration granted emergency approval to Regeneron’s (REGN) antibody treatment on Saturday.

These medical advances are welcome news, given the accelerating spread of the virus in the U.S. Several states have decided to re-enact business and travel restrictions this week.

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

As a reminder, next week will only have three full trading days. The Thanksgiving holiday on Thursday will be followed by a half-day on Friday. Historically, it is one of the slowest weeks of the year for market activity.

Despite the short week, Best Buy (BBY), Deere (DE), and Dell (DELL) are all scheduled to report quarterly earnings. Wednesday will be busy on the economic front; we’ll get a look at durable goods orders as well as minutes from the latest FOMC meeting.

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

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

Stock of the Week: Bloom Energy (BE)

The company produces a stackable energy generator that utilizes solid oxide fuel cells. The technology takes natural gas and converts it to electricity, with half of the carbon dioxide emission.

The stock gained more than 3% this week. We believe this momentum can continue throughout the final two months of 2020. Here’s why:

For one thing, Bloom Energy has strong operating momentum. It is on the verge of generating sustainable profitability for the first time ever.

Both empirical data and our own anecdotal experience suggest that investing in a business at this stage of its growth trajectory can be lucrative. Several institutional investors only focus on firms that generate consistent profits. 

The company posted mixed quarterly results on Oct. 29. Management announced a loss of $0.04 a share in the third quarter, which exceeded the consensus analyst estimate. On the other hand, revenue fell 10% from a year ago to $200.3 million and fell short of expectations.

Bloom Energy estimates that it has an addressable market of $175 billion, from which it’s expected to generate $1.07 billion of revenue in 2021. With operating scale improving, we believe that management can generate a small profit next year that could continue to grow over the next several quarters.

In addition, it’s worth noting that 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 the shares have seen improving sentiment from analysts, investors (both professional and individual) 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.