Weekly Market Review: Stocks Mixed as Rates Continue to Climb

The broader market averages ended the week mixed. Investors weighed the prospect of a post-pandemic economic recovery with rising inflation expectations. The S&P 500 fell fractionally during each trading session, although the cumulative loss was just 0.7%. Cyclical groups like Energy and Financials led the way higher, while Healthcare and Utility names lagged.

The 10-year U.S. Treasury note yield climbed another 15 basis points this past week, to 1.35%. One reason for the higher rates may be the large increase in the producer price index (PPI) reported on Wednesday. The PPI grew 1.3% last month (1.2% excluding food and energy). This was the largest increase since the current measure started in 2009.  

Elsewhere in economic action, it was reported on Wednesday that January advance retail sales increased 5.3% (5.9% excluding autos). The result surpassed expectations, after two straight months of negative readings. It was likely boosted by recent $600 stimulus checks.

What to Expect Next Week

66 companies in the S&P 500 are scheduled to announce quarterly results next week. Airbnb (ABNB), Home Depot (HD), Nvidia (NVDA), and Salesforce.com (CRM) are all scheduled to report.

On the economic front, we’ll get the Leading Economic Indicators on Monday, followed by Durable Goods orders Thursday. The PCE Deflator will be announced on Friday, which is the Fed’s key measure for consumer inflation.

Finally, the Food and Drug Administration is meeting on Friday to discuss Johnson & Johnson’s (JNJ) potential COVID-19 vaccine. The news comes as the U.S. crossed the tragic milestone of 500,000 total reported deaths from the disease this week.

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

Stock of the Week: Laboratory Corp. (LH)

The company provides two services: 1) diagnostic lab testing and 2) drug-development services. Both of these businesses are relatively steady, no matter where we currently are in the economic cycle.

The stock gained more than 3% this week. We believe this momentum can continue in the first half of 2021. Here’s why:

Management delivered quarterly results earlier this month that exceeded the consensus analyst estimates. The company earned $10.56 a share in the fourth quarter of 2020, as revenue increased 52% from a year ago, to $4.49 billion.

Laboratory experienced 13% organic sales growth in the period, driven by COVID-19 testing. The drug development division also posted a healthy 1.43 book-to-bill ratio for the trailing-12 months. 

In addition, hedge fund Jana Partners recently reported a new $190 million position in the company, according to an SEC filing.

The stock is currently valued at just 11.5x expected 2021 earnings of $21.45 a share. This represents a discount to both the broader market and the average industry valuation of 13.5x.

Finally, 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 shares have seen insider buying, in addition to improving sentiment from 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.