U.S. investors appeared more than happy to change the calendar to June this week. After the Nasdaq Composite reached correction territory on Monday, stock market averages rebounded more than 2% across the board on Tuesday.
The initial recovery sparked a multi-day rally and the S&P 500 index ended the week 4.4% higher. The rebound was ignited by the realization that the FOMC would be more likely to intervene and cut interest rates, to better reflect market pricing in the Treasury yield curve.
The May jobs data on Friday showed another case where “bad news is good for stocks”. The U.S. added just 75,000 non-farm payrolls last month, which was well below expectations. In addition, the readings from the previous two months were revised down by another 75,000 jobs.
However, this report just added one more feather to the cap of folks looking for interest rate cuts. As a result, Fed funds futures are currently pricing in an 85% possibility of an interest rate cut by July, compared with a 14% chance a month ago.
The Week Ahead
Looking ahead to next week, word late Friday that looming tariffs against Mexico were withdrawn and rumors of a potential merger between Raytheon (RTN) and United Technologies (UTX) could keep the positive momentum rolling.
Broadcom (AVGO) headlines a slow earnings calendar next week. On the economic front, we’ll also get several key readings on inflation. There will be a report on producer prices next Tuesday, followed by consumer prices Wednesday and import/export prices on Thursday.
This week reiterated the fact that market conditions can change in a heartbeat. Six months ago, the FOMC raised interest rates and investors were expecting another two or three rate increases for 2019.
Fast forward to today and markets are now pricing in a 54% chance that we see three interest rate cuts by the end of the year.
Investors that were able to stomach the volatility in May have been rewarded handsomely during the first week of June. The fact remains that attractive investments are out there, if you’re willing to dig a little deeper.
One such industrial name that’s worth a closer look is our Stock of the Week below…
Stock of the Week: Chart Industries (GTLS)
The company’s business is centered around its cryogenics technology, but has been generating white-hot growth of late. Just this week, management announced a new contract win and reiterated annual guidance.
We recently added Chart Industries to our Smart Investor portfolio and are pleased to see that shares were up 6% this week.
Looking ahead, these gains should keep on coming. Here’s why:
Consensus analyst estimates call for the company to average 43% earnings growth over each of the next two years and management has increased guidance three times in as many quarters.
Chart Industries operates in three distinct businesses; 52% of the company’s revenue last year was derived from industrial customers, while another 40% came from the energy sector (primarily natural gas). The final 8% was from the life sciences industry.
The energy business is where Chart Industries’ upside potential lies and just Thursday, management announced a $10.4 million equipment order for a liquefied natural gas (LNG) project.
The company reported 51% organic year-over-year order growth in the first quarter and said backlog stands at its highest level in five years. Management has also been actively cutting costs, which should help improve margins in the coming quarters.
Acquisition Boosts Growth Potential
Chart Industries announced on May 9 that it bought the Air-X Changers business from Harsco (HSC), for $592 million of cash. The business manufactures coolers for gas compression systems used in the exploration/production and transportation of energy commodities.
The Air-X Changers purchase adds to the company’s existing business in this area, which management noted was an area seeing strong order growth last quarter.
Chart Industries expects the deal to close on July 1 and add to future earnings, with the help of $20 million of annual cost synergies. Management announced on Wednesday that it has secured $1.1 billion of financing commitments, which is more than enough to pay for the acquisition
As initially announced with the purchase and reiterated this week, the company expects to earn $2.85 to $3.20 a share in 2019, which marked the third time that management increased guidance in as many months.
Previous increases were driven by LNG orders, where Chart Industries boosted its full-year order pipeline guidance by 56% in April. Management is currently bidding on several other large LNG orders that could further increase future earnings, if they come to fruition.
Finally, I’m encouraged to note the stock sports a Smart Score of 10/10 on TipRanks, complementing the potential for continued price momentum. This new proprietary metric utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
In addition to the catalysts mentioned above, Smart Score notes the company has seen recent insider buying, in addition to positive sentiment from investors (both institutional and individual) and investment bloggers.
