An old stock market saying suggests that investors “Sell in May and go away.” The first part of that adage held true, at least for the first couple of days of the new month.
The move was likely driven by profit-taking, as the S&P 500 index ended April by closing Tuesday at a record high. The FOMC also poured some water on the rally Wednesday, as comments with the latest interest rate decision talked down expectations for an interest rate cut later this year.
On the other hand, Friday’s April jobs report was a win for the bulls and the Nasdaq Composite also ended the week at a record high.
The U.S. economy added 263,000 non-farm payrolls last month, which was well ahead of the estimate of 190,000. The headline unemployment rate also fell to 3.6%, which is the lowest level in 50 years. In addition, results from the previous two months were revised higher by 16,000 jobs.
Earnings Continue to Exceed Low Expectations
The markets’ run higher the past couple of weeks was largely driven by strong quarterly earnings, relative to muted expectations. 77% of companies in the S&P 500 have exceeded profits expectations so far this quarter, which is above the historical average of 67%. The best growth has been from the healthcare sector, while energy names have been a drag on overall growth.
Looking ahead to next week, earnings season is winding down. On the economic front, all eyes will be on inflation; with producer prices reported on Thursday, followed by the consumer price index on Friday.
With the bulk of earnings season behind us and a Fed rate cut seemingly off the table, the question looms: what are the next potential catalysts for the market?
Now that U.S. stocks are up 17.5% year-to-date and valued back above 17x expected full-year earnings, is this the year to “sell in May and go away?”
The fact remains that attractive investments are out there, if you’re willing to dig a little deeper.
One such rapidly-growing technology name that’s worth a closer look is our Stock of the Week below…
Stock of the Week: Yext (YEXT)
The cloud software producer was in the news Monday, when it announced plans to open a new global headquarters in New York City during 2020.
We recently added YEXT to our Smart Investor portfolio and are pleased to see that shares soared 6.6% in the last week alone. Looking ahead, these gains should keep on coming. Here’s why:
Investing Heavily for Growth Opportunity
The company will invest $150 million in its new headquarters over the next decade and create 500 new jobs. These are bold plans for Yext, which generated $228 million in revenue last year and currently has just 1,000 employees.
However, that’s because the company is at the forefront of the Digital Knowledge Management (DKM) business that some industry followers believe could be at least a $10 billion market opportunity.
The aim of Yext’s services is to help companies manage their digital footprint and market themselves through top search engines, location services, and social media. The company has landed deals with hundreds of the top brands around the globe, with the majority of its success coming from the financial services and healthcare industries.
Yext is on a January fiscal year, so management probably won’t be reporting April quarter results for another month. In the meantime, the market will be paying close attention to the company’s presentation at the JP Morgan Global Technology Media and Communications conference on May 14.
Notice we said quarterly “results” and not “earnings.” That’s because the company is investing its sales back into the business and is not currently profitable.
Even so, Yext’s revenue is expected to average 30% annual growth over the next two years. In addition, margins have been steadily moving higher in recent quarters and the company does generate positive operating cash flow.
The fact is that 30% growth is hard to find, which should attract more investors to the stock in the coming quarters. That estimate could actually prove conservative, given the nascent growth potential of the DKM market and the fact that management has met or exceeded both revenue and bottom-line expectations each of the past eight quarters.
Top Pick from a Top Analyst
The analyst community is firmly behind the stock, including top-ranked Mark Mahaney of RBC Capital. On April 21, he named the company one of his top small-cap longs for Q1 earnings, stating:
“Fundamentals are improving and we think company is still in very early days, which means Revenue growth should be sustainable in the low-to-mid 30%s range. International is now breaking out and new Enterprise Logos are accelerating.”
Mahaney is ranked #26 out of more than 5,000 analyst tracked by TipRanks, which lends extra credence to his vote of confidence.
FYI:
This is just 1 of the 20+ stocks selected for the Smart Investor portfolio.
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