Weekly Market Review: Stocks Rebound Sharply

The broader U.S. market averages made back all losses from the previous week, gaining about 7%. Technology and Healthcare names led the way higher, while the Energy sector lagged.

After the U.S. Presidential election on Tuesday, Joe Biden was declared the winner on Saturday. It appears that Democrats will maintain a narrow majority in Congress, and Republicans will hold in the Senate. 

History suggests that a split government bodes well for the U.S. economy which faces a difficult climb out of a recession sparked by COVID-19 business restrictions.

On that front, the economy continues to exhibit progress in area jobs recovery. On Friday, the U.S. announced the addition of 638,000 non-farm payrolls in October. Meanwhile, the headline unemployment rate fell to 6.9%.

Coronavirus Update

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

We crossed the tragic milestone of 50 million reported cases globally this week, including 10 million in the U.S.

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

Earnings Season is largely over, but Cisco Systems (CSCO), McDonald’s (MCD), and Walt Disney (DIS) are notable names on the reporting calendar next week. On the economic front, we’ll get a look at both consumer and producer inflation.

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

Stock of the Week: SS&C Technologies (SSNC)

The company provides software solutions for the financial services sector that help automate and process transactions.

The stock gained 9% this week and we believe this momentum can continue throughout the final two months of 2020. Here’s why:

SS&C has strong operating momentum, which was on display last month, when management announced quarterly results that exceeded the consensus analyst estimates.

The company earned $1.10 a share in the third quarter, as revenue increased fractionally from a year ago, on $1.16 billion of revenue. Upside in the period was driven by higher margins, as SS&C is keeping a lid on costs.

Another vote of confidence came when the company boosted its quarterly dividend 13% in August, to $0.14 a share. The 0.9% yield isn’t particularly high; however, it’s impressive to see any business increase their payout in the depths of a recession. SS&C additionally returns cash to investors through a $750 million stock buyback program.

At current levels, the company is priced at 14.9x expected 2021 earnings of $4.33 a share. This represents a discount to both the broader market and industry median valuation of 17x.

SS&C has also attracted the interest of Seth Klarman, manager of the Baupost Group hedge fund. Klarman initiated a new $8 million position in the stock last quarter, according to SEC filings.

In addition, it’s worth noting that the company carries a Smart Score of 9/10 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 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.