It was a short trading week, yet U.S. stocks still gained 4% as we entered July and the third quarter.
The S&P 500 gained 19.9% in the second quarter, its best performance since 1998. The Nasdaq Composite rebounded more than 30% for its highest quarterly gain since 1999. The Dow Jones Industrial Average moved just 17.8% higher for the quarter and saw its best performance since 1987.
Investors continue to be encouraged by improving economic data. On Thursday, the U.S. June jobs report showed the addition of 4.8 million non-farm payrolls and the unemployment rate fall to 11.1%.
Elsewhere, the ISM Manufacturing Index moved back over 50, suggesting economic expansion. In addition, U.S. monthly pending homes sales and factory orders exceeded expectations this week.
Coronavirus Update
While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us. As testing increases, nearly 200,000 new daily cases are being recorded globally, including about 50,000 in the U.S. alone.
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 this summer.
What to Expect Next Week in Q3
A new quarter means that Earnings Season is around the corner. Retailers Bed Bath & Beyond (BBBY) and Walgreen Boots Alliance (WBA) headline a relatively quiet reporting calendar this week.
On the economic front, traders will be looking to see if the non-Manufacturing ISM report on Monday also comes in above 50; signaling an economic expansion.
Following the snap-back recovery in stocks over the past few months, we believe that investment gains will be harder to come by in the second half of the year.
That’s because improving economic data will likely start to run into a return to business and travel restrictions, given the renewed spread of the coronavirus.
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: Pacira Pharmaceuticals (PCRX)
The company’s growth is driven by its non-opioid pain medication, Exparel. The product is also in late-stage clinical studies, to expand its label for post-surgical pain management.
The stock gained more than 18% this week and we believe this positive momentum can continue into the second half of the year. Here’s why:
Pacira jumped this week, as Heron Therapeutics (HRTX) was told by the Food and Drug Administration that approval of a competing pain medication would be delayed.
That means management can continue to build upon its recent earnings momentum in the coming quarters.
Back in May, the company posted a quarterly profit of $0.53 a share and exceeded expectations. Revenue increased nearly 16% from the previous year, to $105.7 million, also surpassing the consensus analyst estimate.
Pacira said that demand was growing at a 20%-plus clip in the early days of 2020 (before coronavirus) and believes this momentum can resume in due time.
Management is targeting that at least 80% of surgeries cancelled during the shutdown will still happen this year, with several more occurring in early 2021. The company is also seeking approval for Exparel in Canada and Europe.
As a result, Pacira remains on track to average 42% earnings growth over the next two years, to $3.37 a share in 2021. The stock is currently trading at 15.5x expected forward profit, which is a steep discount to the company’s growth rate.
It’s additionally 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 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.
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!
