Major stock market averages ended mixed on Friday. Not even media reports of planned U.S. tax cuts to encourage more stock market investing could entice traders to take on extra risk ahead of the three-day weekend.
The benchmark S&P 500 index gained 1.6% for the week, led by Real Estate names. A raft of solid earnings reports helped offset news that the number of coronavirus cases in China jumped this week.
Earnings Download
Expedia (EXPE) was a big earnings-related winner this week, while Bed Bath & Beyond (BBBY) disappointed the market with its quarterly results.
Of the 387 S&P 500 companies that have posted earnings so far this quarter, 72% have exceeded profit estimates. This is above the historical average of 65% and aggregate fourth-quarter earnings are expected to increase 2.6% from the previous year.
The Week Ahead
Looking ahead to next week, U.S. markets will be closed on Feb. 17 for George Washington’s birthday. Medtronic (MDT) and Wal-Mart (WMT) will post quarterly results on Tuesday, kicking off an otherwise busy earnings week, with 54 S&P 500 constituents scheduled to report.
On the economic front, we’ll get a look at the minutes from the latest FOMC meeting on Wednesday. Fed funds futures are currently pricing in a 57% chance of an interest rate cut by July.
We know that deciding what and when to buy can be challenging for any investor, especially with 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 Consumer name that is leveraged to a strong domestic economy is worth a closer look and is our Stock of the Week.
Stock of the Week: Lowe’s (LOW)
The company operates more than 2,200 home improvement stores throughout North America. The stock gained 3% this week and we believe this positive momentum can continue throughout 2020.
Here’s why:
For one thing, the retailer is a clear beneficiary of the interest rate cuts we’ve seen over the past year and could continue to benefit in 2020. Lower rates have led to sustained construction activity and higher prices for homes. With more equity in their pockets, consumers are also more willing to spend and upgrade their current abodes.
This has allowed Lowe’s to sustain positive operating momentum that was apparent when management posted quarterly results last November.
The company earned $1.41 a share in the October quarter, which exceeded expectations. Same-store sales increased 2.2% in the period, despite being held back by 95 basis-points because of commodity deflation.
The retailer saw strong demand in all regions of the country, driven by increased traffic from construction professionals. Lowe’s also boosted its full-year profit guidance by 2%, and expects to earn $5.63 to $5.70.
Analysts Taking Notice
Wall Street agrees the company is firing on all cylinders. According to TipRanks, 15 out of 18 active analysts rate the stock a Buy.
This includes Randal Konik of Jefferies, who added the retailer to the Franchise Picks list last month, citing:
“Evidence of the company’s transformational turnaround will continue to unfold. In addition, he believes the backdrop for remodeling demand remains conducive, due to aging household inventory, millennial household formation and increasing home equity values. He expects that comp sales to grow in the ~3% range, aided by improved execution, better merchandising, enhanced in-stock inventory positions, a greater focus on the Pro and localization efforts.”
Lowe’s will next post quarterly results on Feb. 26 and consensus analyst estimates call for earnings of $0.91 a share, up from $0.80 a year ago, on $16.18 billion of revenue. Management has surpassed profit expectations five of the past six quarters.
In addition, it’s worth noting that the shares carry a Smart Score of 10/10 on TipRanks. This proprietary score 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, the Smart Score indicates that the company has improving sentiment from financial bloggers and news.
Wishing you a world of investment success!
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