U.S. stocks kicked off the new month on a positive note as the S&P 500 and Dow Jones Industrial Average gained six straight trading sessions. The Nasdaq Composite snapped its own eight-day winning streak on Friday but still added 2.5% to recent gains this week.
The parade of better-than-feared earnings reports continued this week. Disney was a big winner, gaining 11% the day after delivering a surprise quarterly profit.
441 companies in the S&P 500 have posted second-quarter results so far and 82% have exceeded expectations. According to Refinitiv, this is well ahead of the 71% “beat rate” seen over the past four quarters.
Investors were also impressed by a solid July jobs report on Friday that surpassed expectations. The U.S. economy added 1.76 million non-farm payrolls last month and the headline unemployment rate fell to 10.2%.
While the market-centric news was largely upbeat this week, Congress has yet to come to an agreement about the fourth round of economic relief. News reports suggest that talks have stalled around benefits to state and local governments.
On Saturday, President Trump went ahead and signed Executive Orders extending additional unemployment benefits (down to $400/week) and eviction moratoriums that expired at the end of July. He also deferred student loan payments through the end of the year and created a payroll tax holiday for employers.
Coronavirus Update
While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us. The U.S. crossed the tragic milestone of 5 million reported cases this week, which is the largest single tally of the nearly 20 million cases worldwide.
If the pandemic continues to spread, it will likely hamper the positive trajectory of economic recovery reported in recent months.
What to Expect Next Week
Now that earnings season is effectively over, investors’ focus shifts squarely to the ability of Congress to strike a fourth economic relief agreement.
Cisco Systems (CSCO) headlines a relatively quiet earnings calendar on Wednesday.
In economic news, we’ll look at inflation earlier in the week followed by July Retail sales on Friday.
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 Industrial name is worth a closer look and is our Stock of the Week.
Stock of the Week: Westinghouse Air Brake (WAB)
The company manufactures components for all matter of trains and buses and offers investors growth at a reasonable price.
The stock gained 8% this week and we believe this positive momentum can continue throughout the second half of the year. Here’s why:
Westinghouse posted solid quarterly results on July 28. The company earned $0.87 a share in the second quarter, which surpassed expectations. Revenue fell 24% from the previous year to $1.7 billion and met the consensus analyst estimate. Upside in the period was driven by higher cost synergies.
Westinghouse has more than two years’ worth of revenue in its order backlog. In the meantime, the company is cutting costs and trades at a discount to its near-term earnings growth rate.
Westinghouse trades a 15.3x expected 2021 earnings of $4.38 a share, which is a discount the industry average of 19.6x. It is also below the 17.6% average profit growth the company is expected to deliver the next two years.
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 insider buying, in addition to improving sentiment from analysts, hedge funds, 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.
