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Weekly Market Review: Rally Ahead of Earnings

U.S. stocks gained across the board this week, before the start of earnings season.

The S&P 500 gained 1.8%, led by Consumer Discretionary and Communication Services names. Some of the same large-cap technology stocks also drove the Nasdaq Composite 4% higher.

Coronavirus Update

While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us. As testing increases, over 200,000 new daily cases are being recorded globally, including about 60,000 in the U.S. alone.

With so many unknowns surrounding the spread and treatment of the disease, it remains to be seen just how quickly social distancing protocols can be safely relaxed this summer.

Earnings Season

Second-quarter earnings season begins next week, with the financial sector leading the way. Here are some of the names we’ll be watching:

Monday: PepsiCo (PEP)

Tuesday: Citigroup (C), Delta Airlines (DAL), JP Morgan Chase (JPM) and Wells Fargo (WFC)

Wednesday: Goldman Sachs (GS) and UnitedHealth (UNH)

Thursday: Bank of America (BAC), Johnson & Johnson (JNJ), Morgan Stanley (MS) and Netflix (NFLX)

According to Refinitiv, second-quarter earnings and revenue for the S&P 500 are expected to fall 44% and 11.5%, respectively. In addition to the obvious disruptions from coronavirus-related shutdowns, we expect earnings “surprises” to be higher than usual this quarter, as many firms have withdrawn 2020 guidance. 

Following the snap-back recovery in stocks the past few months, we believe that investment gains will be harder to come by in the second half of the year.

As a result, deciding what and when to buy can be challenging for any investor.

However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.

One such Technology name is worth a closer look and is our Stock of the Week.

Stock of the Week: Cirrus Logic (CRUS)

The company makes integrated circuits for consumer electronics and other various industries.

The stock gained 6% this week. We believe this positive momentum can continue into the second half of the year. Here’s why:

What makes Cirrus Logic stand out is that the company derives nearly 80% of its sales from Apple (AAPL). This type of revenue concentration can often raise a red flag, but it’s less of a concern when you’re talking about one of the biggest and best-run businesses on the planet.

The value of that key relationship was apparent when Cirrus Logic posted quarterly results in May that exceeded consensus expectations. The company earned $0.68 a share in the March quarter, as sales increased 16% from a year ago, to $279.2 million.

Management will next announce earnings on Aug. 3. In the meantime, Cirrus Logic has a pristine, debt-free balance sheet, with $598 million ($10 a share) of cash and marketable securities.

Backing this out, the company is valued at just 13.6x fiscal 2020 (ended March) earnings of $3.99 a share. This represents a discount to both the industry average of 21x and the broader market.

Wall Street agrees that Cirrus Logic offers value. The average price target of $79.67 represents 23.7% upside potential.

It’s also worth noting that the stock carries a Smart Score of 9/10 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 seen improving sentiment from investors (both professional and individual) and financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.

You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>

Wishing you a world of investment success!

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