Major market averages ended a three-day winning streak on Friday, but U.S. stocks still posted sharp gains this week. The S&P 500 recovered 10%, led by Energy and Industrial names.
Investors searched for value as both the Federal Reserve and the broader government pledged economic support to combat the economic slowdown resulting from the coronavirus spread.
On Monday, the size of the quantitative easing program to buy Treasuries and mortgage-backed securities was revised to “in the amounts needed”. The Fed’s buying spree was also extended to corporate bonds, municipal debt, and select exchange-traded funds.
Direct stimulus from the Federal government was less quick to materialize but is still on the way. The President signed a $2.2 trillion package on Friday that was provided (after much wrangling) by Congress. The deal includes tax relief for individuals and business, in addition to direct corporate bailouts.
Coronavirus Update
The main driver of volatility these days remains fear of the global spread of the coronavirus. At this point, the number of global cases is over 590,000 with about 27,000 deaths reported. That figure includes over 100,000 cases in the U.S., where more than 1,500 have died.
The effect of these closings will almost certainly send the domestic economy into a recession in 2020, even if the coronavirus pandemic does not have as much of an impact as some experts fear.
One sign of this effect was apparent in the weekly initial jobless claims report on Thursday. The reading came in at a record 3.3 million; a greater than 10x increase from the week before.
What to Do Next Week?
We’ll get the next look at the coronavirus impact on U.S. jobs on April 3, with the release of the March employment data. Economists are calling for the loss of 150,000 non-farm payrolls; or the loss of 250,000 private jobs, offset by the addition of 100,000 government workers. The headline unemployment rate is also expected to jump back up toward 4% (or higher).
We know that deciding what and when to buy can be challenging for any investor, especially when volatility is on the rise and sentiment can quickly shift from Bull to Bear.
However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Defense name is worth a closer look and is our Stock of the Week.
Stock of the Week: L3Harris Technologies (LHX)
The company was created by the recent merger between Harris and L3 Technologies. Rather than manufacture bullets and tanks, L3Harris is primarily a provider of the technology behind today’s modern warfare.
The stock gained 20% this week and we believe this momentum can continue throughout 2020. Here’s why:
No business is immune from the economic impact of the coronavirus; but Defense spending is one area of the government budget that does not typical experience cyclicality, in the post-9/11 world.
Back in February, management posted quarterly results that exceeded expectations. The company earned $2.85 a share in the December quarter, as revenue increased 190% from a year ago, to $4.83 billion.
Upside in the period was driven by healthy defense spending, which led to margin expansion in each of L3Harris’ operating segments. Looking ahead, management is expecting 5% to 7% organic sales growth in fiscal 2020 (ending June).
Another vote of confidence last month, came when the company boosted its quarterly dividend 13%, to $0.85 a share (1.8% yield). Even though the global landscape has dramatically changed since then, management can cover the payout with 29% of expected full-year earnings of $11.61.
In the meantime, it’s worth noting that it 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 improving sentiment from analysts 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 >>
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