Weekly Market Review: Stocks Rebound Ahead of Earnings

It may be a new year, but it was the same story for U.S. stocks this week. Investors were able to move beyond the military retaliation by Iran on Tuesday and equity averages recovered to close the week back near record highs.

The Dow Jones Industrial Average crossed 29,000 for the first time on Friday, before pulling back. The S&P 500 gained 0.9% for the week, led by technology and communications stocks.

Friday’s jobs data proved to be uneventful, which was just fine for the Bulls. The U.S. economy added 145,000 non-farm payrolls in December and the unemployment rate remained at 3.5%. While the job count was 15,000 lower than consensus expectations, the reading was strong enough not to set off any alarms.

Looking Overseas

There’s no telling when and where a situation like Iran can flare up, but two other long-standing international issues are moving closer toward a resolution.

First, UK’s Parliament voted on Thursday to advance Brexit proceedings at the end of January. In addition, a contingent from China is expected arrive in Washington D.C. early next week, to sign a Phase One trade deal with the U.S.

Earnings Season Awaits

Earnings season kicks off this week, with financial names Citigroup (C), JP Morgan Chase (JPM) and Wells Fargo (WFC) all scheduled to report on Tuesday.

Consensus expectations for aggregate S&P 500 earnings growth call for an annual decline of 1% to 2% in the fourth quarter. The final tally could end up positive, as actual results have historically exceeded estimates.

That said, a second straight quarter of negative earnings growth would place the U.S. in an earnings recession. With broader stock market averages at record levels, it’s one reason we believe that investors will place an added premium on profit growth in 2020.

We know that deciding what and when to buy can be challenging for any investor, especially with global economics rapidly evolving and U.S. stocks at record highs.

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: Tandem Diabetes Care (TNDM)

The company sells insulin pumps to help treat diabetes. The stock gained 13% this week and we believe this positive momentum can continue into the new year.

Here’s why:

Tandem has introduced six insulin pumps in the past six years to a diabetes market that is steadily growing. There are about 1.7 million people in the U.S. living with type 1 of the disease that the company believes would greatly benefit from using an insulin pump to manage their blood sugar on a 24/7-basis.

There are also 3 million type-1 patients in foreign markets that Tandem is targeting. In addition, the company has identified another 1.6 million cases of the more prevalent type 2 version of diabetes in the U.S., as potential users for its pumps.

Currently, industry giant Medtronic (MDT) is Tandem Diabetes’ chief competitor in the insulin pump business. Compared with Medtronic’s top offering, Tandem’s t:slim X2 device is 38% smaller and 13% lighter, but still offers a screen that’s 22% larger. 

New Technology Driving Profit

On Dec. 13, Tandem took its technology to the next level. The Food and Drug Administration cleared the company to market its t:slim X2 insulin pump with new Control-IQ technology. The “closed loop” system is an innovative solution that allows users with diabetes to more effectively and continually monitor blood sugar levels.

As a result, Wall Street now expects the company will deliver its first-ever annual profit of $0.03 a share in 2020, up from the consensus analyst estimate for a loss of $0.52 in 2019. 

Both our experience and history have shown that one of the most lucrative times to invest in a company is when they’re about to become profitable for the first time.

Analysts also agree that Tandem has upside potential. Five of the six active analysts tracked by TipRanks have Buy ratings (1 Hold) and the average price target of $79.50 represents 18.2% upside potential from current levels.

The stock is up 58% over the past year, so it’s hardly been flying under the radar. That said, with a market capitalization of $3.5 billion, Tandem is still considered a niche player in the healthcare sector.

By moving into the realm of sustainable profitability, the company will likely garner the attention of larger institutional investors looking for high growth, but not willing to take on the high risk associated with the biotech industry.

In addition, it’s worth noting the shares carry a Smart Score of 8/10 on TipRanks. This new 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 says the company has positive sentiment from investors (both professional and individuals) and financial bloggers.

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