Weekly Market Review: Volatility Returns at Month-End

U.S. stocks sold off sharply as the month of October came to an end. The broader market averages fell 5% to 6% across the board, led by Technology and Industrial names. The price of crude oil also noticeably dropped more than 10% this week, as long-term U.S. Treasury yields continue to press higher.

There are multiple reasons why stocks may be selling off, but they all point to the prospect of slower business/economic growth in the coming quarters:

1. Resurging coronavirus cases across the globe
2. Delay in another round of U.S. economic relief
3. An increasing likelihood of Biden winning the U.S. Presidential election on November 3rd, which would likely lead to higher taxes

Coronavirus Update

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

Pfizer (PFE) delayed results of its vaccine trials this week. The U.S. also reported record new cases of more than 90,000 and 100,000, respectively, on Thursday and Friday.

During the week, France and Germany announced that new business restrictions would be re-enacted. The U.K. declared its own stay-at-home order on Saturday, the same day that New York State announced strict testing and quarantine rules for visitors. 

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

All eyes will be on the U.S. Presidential election on Nov. 3. The majority of polls and election simulations suggest that Joe Biden is leading, however President Trump won from a similar position four years ago.

It also appears increasingly likely that the winner(s) of the national elections may not be clear on the morning of Nov. 4. Any uncertainty in this realm could continue to weigh heavily on investor confidence.

Looking ahead to next week, 129 companies in the S&P 500 are expected to post results.  Bristol Myers (BMY), CVS Health (CVS), General Motors (GM), Marriott (MAR) and Qualcomm (QCOM) are among the names headlining the earnings calendar.

86% of the 319 companies in the S&P 500 that posted results so far have exceeded expectations, which is above the average of 73% over the past four quarters.

On the economic front, we’ll get the October jobs report on Friday. Estimates call for the addition of 600,000 non-farm payrolls last month and for the headline unemployment rate to tick down to 7.8%.

The renewed volatility this past week is a reminder that economic growth and equity valuations face headwinds as we look toward 2021. 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 Retail name is worth a closer look and is our Stock of the Week.

Stock of the Week: Albertsons (ACI)

The company operates over 2,200 grocery stores across 34 states, under the Albertsons, Safeway and Vons brands.

The stock was little changed this week, despite the carnage in the broader market. We believe this relative outperformance can continue throughout the final two months of 2020. Here’s why:

The retailer posted quarterly results on Oct. 20 that surpassed expectations. The company earned $0.60 a share in the August quarter, as revenue increased 11% from the previous year, to $15.76 billion. Same-store sales also grew 13.8% in the period.

Upside in the quarter was driven by market share gains. In addition, Albertsons paid down and re-financed debt in the period, which is expected to generate $52 million of annual interest savings.

Last month, management also initiated a quarterly dividend of $0.10 a share (2.7% yield). Investors at the close of trading on Oct. 22 qualified for the upcoming payment on Nov. 10. The company can cover the new payout 5.3x with expected full-year earnings of $2.13.

In the meantime, the stock is currently valued at just 6.9x expected full-year earnings of $2.13 a share. This represents a steep discount to the broader market and industry median of 19x.

In addition, it’s 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 insider buying, in addition to 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.