Weekly Market Review: A Big Earnings Week Ahead

It was a short trading week for U.S. markets and stocks declined on fears that the coronavirus in China, was starting to travel around the globe.

While there have been two cases of the coronavirus confirmed in the U.S., contracted while traveling in China, the spread of the disease appears to be relatively contained so far.

The broader market averages hit record highs in the first half of the holiday-shortened week but ended 1% lower across the board. Energy stocks lead the way down, while a flight-to-safety saw Utility names outperform. 

Earnings Download

The pace of earnings reports accelerated this week and Intel (INTC) was the big winner. Shares of the semiconductor giant gained 8%, a day after impressing investors with its quarterly results.

Of the 85 S&P 500 companies that have posted earnings so far this quarter, 68% have exceeded profit estimates. This is above the historical average of 65%, but aggregate fourth-quarter earnings are expected to decline 0.5% from the previous year.

The Week Ahead

Looking ahead to next week, Apple (AAPL), eBay (EBAY), Pfizer (PFE) and Starbucks (SBUX) are all scheduled to announce quarterly results on Tuesday. Facebook (FB) will post on Wednesday, followed by Amazon (AMZN) and Coca-Cola (KO) on Thursday. Exxon Mobil (XOM) rounds out the earnings calendar on Friday.

On the economic front, we’ll get the next FOMC interest rate decision on Wednesday afternoon. Fed funds futures are factoring in an 87% chance of no change to policy this month. However, there’s currently a 52% probability that we’ll see another interest rate cut by the September meeting.

Thursday also offers the initial reading on fourth-quarter GDP. Economists are predicting 1.9% growth, down from a final third-quarter reading of 2.1%. While the U.S. economy may be facing an earnings recession, the overall numbers suggest a healthy business environment.

We know that deciding what and when to buy can be challenging for any investor, especially with U.S. stocks near record highs and new risks emerging on a regular basis.

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: Stryker (SYK)

The company makes a wide range of medical products, including replacement joints and related surgical supplies.

The stock gained 1% this week, while most others lost ground. We believe this positive momentum can continue into the new year.

Here’s why:

As demographics go, Stryker is clearly a play on the aging “Baby Boomer” generation. The company is looking to capitalize on this position, with a sizable acquisition that management announced last November.

Stryker is in the process of buying Wright Medical (WMGI), for $4 billion of cash. The deal is expected to close in the second half of 2020 and make the company a market leader in manufacturing shoulder replacement parts. Management has also targeted $100 to $125 million of annual cost synergies to be realized, as a result of the combination.

Stryker will get a chance to flex its earnings muscle next week, as management is scheduled to announce quarterly results after the close of trading on Jan. 28.

The company is expected to earn $2.46 a share in the fourth quarter, up from $2.18 a year ago, on $4.11 billion of revenue. Stryker has exceeded the consensus analyst profit estimate each of the past eight quarters and we expect another solid result this time around.

Management has also been quick to share its profits with investors. Last December, Stryker boosted the quarterly dividend by 11%, to $0.575 a share (1.1% yield). The next payment will be issued on Jan. 31.

In addition, it’s worth noting that the shares carry a Smart Score of 10/10 on TipRanks. This proprietary metric 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, Smart Score indicates the company has solid price technicals, in addition to improving sentiment from analysts, hedge funds and financial bloggers.

Wishing you a world of investment success!

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