Earnings season kicked off with a bang, and U.S. stocks added 2% to recent gains this week. Utility and Technology names led the way higher, while Energy stocks lagged this week.
Investors also celebrated several pieces of positive economic data from around the globe. For example, U.S. December home starts were reported at the highest in 13 years. In addition, Chinese industrial production increased by more than expected last month.
The two countries also finally signed Phase One of their trade deal on Wednesday. Even so, tariffs will continue to be levied as China and the U.S. now tackle the difficult task of discussing intellectual property and technology transfer rights
Earnings Download
The financial sector kicked off the fourth quarter earnings season this week with most companies exceeding consensus expectations. Next week will also be busy on the earnings calendar, although U.S. markets will be closed on Monday for a holiday.
IBM (IBM) and Netflix (NFLX) will kick things off on Tuesday, followed by Johnson & Johnson (JNJ) on Wednesday. Intel (INTC) and Procter & Gamble (PG) headline the reporting calendar on Thursday.
To date, 9% of the S&P 500 has posted quarterly results, with 70% beating profit expectations. This is near the historical average, but aggregate earnings are down 0.8% from the previous year.
Keep an Eye Out
One thing we’re watching these days is the concentration of wealth among the largest publicly-traded stocks in the U.S. This week, Google (GOOGL) joined Apple (AAPL) and Microsoft (MSFT) in the $1 Trillion club, less than 16 years after its IPO.
On Wednesday, Bespoke Investment Group noted that the five largest companies in the S&P 500 now account for 17.3% of the total index value. This is the highest level since 17%, back in 2000.
We’re not ready to suggest that prices are headed for a cliff, as many investors recollect from the latter half of 2000 and throughout 2001. However, this historic disconnect does suggest that value can still be found in small and mid-cap stocks that have sound financial outlooks.
We know that deciding what and when to buy can be challenging for any investor, especially with 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 Financial name, is worth a closer look and is our Stock of the Week.
Stock of the Week: Citizens Financial (CFG)
The company is a Rhode Island-based bank, with about 1,100 branches. The stock gained 3% this week and we believe this positive momentum can continue into the new year. Here’s why:
On Friday, management posted solid quarterly results. Citizens earned $0.99 a share in the fourth quarter, which exceeded the consensus analyst estimate.
The record profit result was driven by strong mortgage and capital markets activity, in addition to demand for foreign exchange and interest rate products.
Tangible book value increased 12% from the previous year, which also gave the company confidence to increase its quarterly dividend on Friday, for the eighth time in the past four years.
Investors at the close of trading on Jan. 24 will receive the payout of $0.39 a share on Feb. 12. The 3.5% yield is about twice the yield on the benchmark 10-year U.S. Treasury note and can be covered 2.5x with Citizens’ expected 2020 earnings of $3.87. Management also consistently returns cash to investors through stock buybacks.
Several banks were left out in the cold last year, as the FOMC reversed three interest rate hikes from 2018. That said, the company has managed its balance sheet well and remains leveraged to solid U.S. economic growth.
Despite the recent move higher, investors can still buy Citizens at a reasonable price. The bank is currently valued at just 10.5x expected full-year earnings, compared with the industry median of 11.8x.
It’s also worth noting that the shares carry a Smart Score of 9/10 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.
Wishing you a world of investment success!
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