U.S. stocks declined Friday, they rallied nearly 2% for the week while riding a wave of volatile market action. Healthcare and Technology names led the way higher.
The recovery began on Monday following news the Federal Reserve would begin buying individual corporate bonds.
The rally continued on Tuesday, driven by a record U.S. retail sales report. Sales increased by 17.7% last month nearly doubling expectations.
Trading volume was higher than usual this week for a couple of reasons. First, the annual rebalance of the Russell 2000 occurred on Friday. The week also marked quadruple-witching options expirations which only happens once every three months.
Coronavirus Update
While it may no longer be the top news story, the coronavirus pandemic is still with us. As testing increases, over 125,000 new daily cases are being recorded globally. In addition, new states like Arizona, California, Florida, and Texas are seeing hospital admissions increase.
With so many unknowns surrounding the spread and treatment of the disease, it remains to be seen just how quickly social distancing protocols can be safely relaxed.
While it may no longer be the top news story, the coronavirus pandemic is still with us. As testing increases, over 125,000 new daily cases are being recorded globally. In addition, new states like Arizona, California, Florida, and Texas are seeing hospital admissions increase.
With so many unknowns surrounding the spread and treatment of the disease, it remains to be seen just how quickly social distancing protocols can be safely relaxed.
What to Expect Next Week
Trading could remain volatile next week as institutional investors prepare their portfolio for both a quarter-end snapshot and the second half of 2020.
On the economic front, we’ll receive a slew of reports including the weekly jobless claims. May durable goods orders are expected to post 11.6% growth, which would be a sharp reversal of the 17.7% decline a month ago. We’ll also get the final reading for first-quarter GDP, which is expected to fall 5%.
We know that deciding what and when to buy can be challenging for any investor. This is especially true when uncertainty is high and there is uncertainty whether this recovery is sustainable.
However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Utility stock with a solid dividend yield is worth a closer look and is our Stock of the Week.
Stock of the Week: AES (AES)
The company both generates power and operates utilities across 15 countries. Utilities are generally considered to be stable investments, but AES also offers investors a growth kicker.
The stock gained 5% this week and we believe this relative outperformance can continue into the second half of the year. Here’s why:
Analysts and Insiders See Value
Earlier this week Morgan Stanley raised its price target to a Street-high of $18.50, which represents 38.7% upside potential.
But you don’t just have to take the analysts’ word for it, management has also been buying up stock. Last month, chief operating officer Jeffrey Ubben purchased 500,000 shares of the company on the open market.
There are several reasons why insiders may sell a stock, but they usually only buy when they’re upbeat about a business’ prospects. Arguably, nobody understands the near-term outlook better than someone in the executive suite.
Something for Both Growth and Value Investors
Looking forward, the utility is targeting 7% to 9% annual growth of both profit and free cash flow. AES is already putting that cash flow to good use.
At a time when investors are worried about companies with too much debt, the company’s balance sheet is moving in the right direction. Management nearly halved the utility’s debt-load in 2019, resulting in a new investment-grade rating for its bonds.
Dividends are also a major part of the investment thesis for any utility and management boosted the quarterly payout last December, to $0.1433 a share (4.3%) yield. AES will likely distribute its next dividend in August.
In addition, it’s worth noting that the stock 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 company has seen improving sentiment from 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.
You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>
Wishing you a world of investment success!
