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Weekly Market Review: Taking Profits Ahead of Earnings Season

The broader U.S. stock market averages kicked off the fourth quarter on Friday with solid gains across the board. However, the S&P 500 fell more than 2% last week.

Information Technology and Consumer names led the way lower, while the Energy sector continued its recent run higher.

Economic data was mixed this week. September consumer confidence showed a decline on Tuesday. On the other hand, Friday’s ISM manufacturing index painted a brighter picture.

The Week Ahead

Pepsico (PEP) headlines a relatively quiet earnings calendar next week. The heart of reporting season is right around the corner. According to Refinitiv, aggregate S&P 500 profit is expected to grow 29% year-over-year in the third quarter. This is leveraged from a 14% revenue increase.

On the economic front, ISM’s Services index will be reported on Tuesday, followed by the September jobs report Friday. Economists are calling for the addition of 460,000 non-farm payrolls in the U.S. last month. They anticipate that the headline unemployment rate will tick down to around 5.1%.

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

Stock of the Week: Electronic Arts (EA)

The company publishes video games for consoles, computers, and mobile devices.

The stock gained more than 10% last week. We believe this outperformance can continue in the final months of 2021. Here’s why:

NPD Group recently reported that sales in the video game industry are increasing at a double-digit pace. This momentum was apparent in Electronic Arts’ recent quarterly results which exceeded the consensus analyst profit estimates.

The company earned $0.71 a share in the June quarter, given demand for its newer games. Management bought back $325 million worth of stock in the latest quarter. Electronic Arts also offers a quarterly dividend of $0.17 a share (0.5% yield).

At current levels, the stock is valued at 21.7x expected full-year earnings of $6.62 a share. This is a discount to the average industry price of 26.5x.

Wall Street also believes the company has upside potential. The average price target of 19 active analysts tracked by TipRanks is $173, which is 20.5% higher than current levels.

In the meantime, 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 shares have seen insider buying, in addition to improving sentiment from 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.