All’s well that ends well. The week and the month of December got off to a bearish start, as the Dow Jones Industrial Average fell 1% on both Monday and Tuesday.
However, U.S. stocks clawed their way back over the rest of the week and finished mixed, aided by a solid November jobs report on Friday.
The domestic economy added 266,000 non-farm payrolls last month, which soundly beat expectations. Readings from September and October were also revised higher, as the headline unemployment figure fell to 3.5%.
Trade Issues Increasing
Another key issue driving the seesaw trading action this week, was headlines coming out about trade disputes in multiple areas of the globe.
The on-again, off-again trade talks between the U.S. and China appear to have thawed by the end of the week, with China reportedly exempting some U.S. agriculture purchases from tariffs. However, investors now apparently have to deal with two new theaters in the current Trade Wars.
First, President Trump enacted an import tax on steel and aluminum shipments from Argentina and Brazil to combat recent currency devaluation by the two countries.
In addition, the U.S. is reportedly considering a 100% tariff on $2.4 billion of French goods, in reaction to a digital tax the country levied that may affect some tech giants back at home.
Historically, tariffs and related trade measures have a negative effect on global economic growth, so this is an issue that will need to be closely followed as we head into 2020.
We know that deciding what and when to buy can be challenging for any investor. Even so, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper. One such technology name that boosted its growth outlook on Tuesday, is worth a closer look and is our Stock of the Week.
Stock of the Week: Microchip (MCHP)
The company manufactures a wide variety of semiconductors, and on Tuesday management provided an upbeat sales outlook.
The stock gained more than 4% this week and we believe this positive momentum can continue into 2020. Here’s why:
On Tuesday, Microchip boosted its profit guidance for the December quarter by 2%, to a range of $1.19-$1.30 a share. The company said booking trends have been strong throughout the period and that revenue could be as high as $1.31 billion.
The following day, at a Credit Suisse Technology conference, management said that the key to its success lies in leverage to six key growth markets: 5G Wireless, Data Centers, Autonomous Driving, Internet of Things, Electric Vehicles and All-Machine Learning.
These six markets will help several technology companies grow over the next decade, but what helps set Microchip apart is its consistent return of cash to investors.
Back in November, the company boosted its quarterly dividend to $0.367 a share (1.5% yield). Management has also paid down $1.73 billion of debt over the past five quarters.
In the meantime, Microchip is currently valued at 15.8x expected fiscal 2021 (ending March) earnings of $6.24 a share. This forward multiple is a discount to both the industry average of 18.2x and the 16.5% annual earnings growth the company is expected to deliver over the next two years.
Management is one group that sees value in the shares these days. Back in November, four insiders, including three members of the C-Suite, bought $6.5 million worth of Microchip shares on the open market.
It’s also worth noting the stock carries a Smart Score of 10/10 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 solid price technicals, in addition to positive sentiment from analysts, hedge funds and investment bloggers.
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