Weekly Market Review: Stocks Continue Rally Ahead of Earnings

The broader U.S. market averages gained at least 2% across the board last week. Technology and Consumer Discretionary names led the way higher, while the Energy sector lagged.

On Monday, the ISM non-Manufacturing index posted a record high of 63.7 for March. This is another recent positive sign that the Services sector is coming back, as wider vaccine distribution is allowing for more parts of the country to reopen.

Friday saw the announcement of higher-than-expected business inflation in March. The producer price index (PPI) increased by 4.2% from the previous year, which is the highest growth in 10 years.

Excluding food and energy, the core PPI grew 3.1%, which is still above the Federal Reserve’s long-term target of 2% annual inflation. Earlier in the week,  minutes from the latest FOMC meeting confirmed that the Fed is willing to let prices run hotter than usual and keep short-term interest rates low, to ensure that the U.S. job market fully recovers from the COVID-19 pandemic.

The Week Ahead

Earnings season kicks off this week, with the Banking sector headlining the calendar. Notable reports expected include:

  • April 14: JP Morgan Chase (JPM) and Wells Fargo (WFC)
  • April 15: Bank of America (BAC), PepsiCo (PEP) and UnitedHealth (UNH)

According to Refinitiv, aggregate S&P 500 earnings are expected to increase 25% in the first quarter from a year ago. Growth is projected to be led by the Consumer Discretionary, Financials and Materials sectors.

On the economic front, we’ll get a look at the March consumer price index (CPI) on Tuesday. Monthly advance retail sales are due out Thursday, which should reflect a positive impact from the latest round of direct stimulus payments.

Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 2021. 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 Retail name is worth a closer look and is our Stock of the Week.

Stock of the Week: Camping World (CWH)

The company sells and services recreational vehicles (RVs) and related camping supplies. The stock gained nearly 4% this week and we believe this momentum can continue in the first half of 2021. Here’s why:

With travel to most countries (and even some states) off-limits this past year, many Americans chose to hit the road and drive/camp for vacation.

This was apparent in February, when management posted quarterly results that exceeded the consensus analyst estimates. Camping World earned $0.48 a share in the fourth quarter of 2020, as revenue increased 17% from the previous year, to $1.13 billion.

The retailer recently set aside some of these profits to a $100 million stock buyback program. Management is also returning cash to investors through dividends. The company declared $1.55 a share of dividends over the past four quarters, indicating a yield of 4.1%.

Despite the recent gains, the stock is currently trading at just 9.2x expected 2021 earnings of $4.18 a share. This is a steep discount to both the broader market and industry median valuation of 16.9x.

Analysts and Insiders See Value

In the meantime, BMO Capital upgraded the stock last month, from Hold to Buy. Gerrick Johnson is one of six active analysts tracked by TipRanks and the average price target of $47 represents 22.8% upside potential.

Insiders are another group that find value in the name. According to SEC filings, CEO Marcus Lemonis bought $300,000 worth of shares over the past month, on the open market.

There are several reasons why insiders may sell stock in their company; however, they usually only buy when upbeat about the future. Arguably, no one understands the day-to-day prospects of a business better than its top executives.

In addition, Camping World 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 shares have seen improving sentiment from financial bloggers and individual investors.

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.